Multi-Territory Licensing of Audiovisual Works in the European Union

Final Report Prepared for the European Commission, DG Information Society and Media

October 2010

The opinions expressed in this study are those of the authors and do not necessarily reflect the views of the European Commission.

© European Union, 2009-2010 Reproduction is authorised, provided the source is acknowledged, save where otherwise stated

EXECUTIVE SUMMARY
Europe is recognised for its cultural diversity and its vibrant creativity. Its audiovisual sector, valued at € 96 billion and producing more than 1100 films per year, possibly best embodies these unique assets. However, only a fraction of Europe’s audiovisual works are enjoyed outside the countries where they are produced. The European Commission (EC) wishes to assist European creators and audiovisual enterprises to develop new markets through the use of digital technology, and asks how policymaking can best help to achieve this. Promoting a competitive and diverse single market for audiovisual works is a top European Union (EU) policy priority. Policy makers acknowledge that our future depends on Europe’s creative capacity to innovate, and that a competitive audiovisual sector has important economic spill-over effects on other industries. As a core element of Europe’s creative industries the sector will be shaped by several important recent policy strategies – notably EU 2020, the Digital Agenda for Europe and the Cultural Agenda.

The economics of the audiovisual industry and current trends in digital distribution Audiovisual content markets are undergoing significant transformations due to digital technology. VOD is on the rise and close to 700 on-demand and catch-up services exist in Europe. VOD turnover in Europe is expected to grow to approximately € 2.2 billion in 2013. Moreover, digital technology has a wider impact on the sector: social media applications and personalised recommendation and search technologies influence how users discover and select audiovisual works, so providing an opportunity to develop new audiences. As audiovisual services and systems converge (more than 8% of US-sold televisions were internet-enabled in 2008) these online trends increasingly matter to the entire industry. Furthermore, the emergence of VOD (as well as the continued severe impact of online copyright infringements) continues to put pressure on more established version markets, such as pay-TV and DVD (global DVD sales declined by 13% in 2009). Consequently, the audiovisual industry has put digital distribution – and VOD in particular – at the top of its strategic agenda. An understanding of the economic basis of audiovisual content distribution is vital to project how the sector might develop in the future: Firstly, the industry depends on copyright, and neighbouring rights, which foster content creation. Copyright grants rights holders an exploitation monopoly that enables them to decide how to roll out new services to address the needs of consumers and their financial interests. For example, the film industry has in the past continuously expanded the exploitation of its works on multiple distribution channels — theatrical, DVD, VOD (various pricing models), pay-per-view, pay-TV, free-TV — with the goal of maximising the global exploitation revenue for each title. New technical versions have been inserted in the exploitation schedule on the basis of the benefits they would bring to the consolidated revenue across all version markets – a calculation of the revenue each version individually brings in as well as of the impact on revenue one version will have upon another. This means that sophisticated distribution techniques are used to efficiently distinguish between consumers’ preferences and to capture their willingness to pay. Financing audiovisual creation and promoting cultural diversity crucially relies on the efficiency of this process.

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Secondly, the audiovisual sector is a high-risk sector because media products are ‘experience’ goods, which are valued differently by each consumer as well as by different cultural communities. Because of the linguistic and cultural specificities across borders, the European audiovisual industry is structurally fragmented. Cultural and linguistic versioning is therefore essential to create consumer demand for each film or television programme. The investment associated with linguistic versioning, and more generally with the marketing of each audiovisual work, is specific to each territory. Each licensing contract requires negotiation on the size of the investment and on how the risks will be shared between distributors and rights holders. There are no economies of scope and scale, and no risk mutualisation in marketing one single technical version of several products in several linguistic markets. Conversely, there are economies of scope and scale in selling audiovisual rights of several content versions to the same distributor, who can handle the discrimination of the work for a given cultural/linguistic market. Marketing efforts made in this market may then benefit exploitation in all release windows. Finally, the pre-financing of audiovisual works requires significant involvement from stakeholders from the territory they are designed for, especially when this linguistic market is restricted. As a consequence, rights holders will always give priority to exploitation in their own financing territory, and will subordinate foreign distribution to the needs of these investors. As distribution in foreign territories requires specific investment (advertising, labelling, subtitling, dubbing, etc.) to make the product attractive to the local viewer, the selection of a distributor for each territory will rely on the efforts this distributor is ready to make to sell the product, as well as its willingness to pay the highest acquisition fees. This report confirms the direct correlation between such investments in distribution and the success of titles in theatres and on VOD. The EU audiovisual sector is mainly characterised by its fragmentation, which is at the same time both cultural and industrial. This fragmentation goes a long way to explaining why European audiovisual content is licensed primarily on a territorial basis. How does digital technology impact on the dynamics of audiovisual content distribution? VOD decreases distribution and storage costs. It enables various players to enter the distribution market and creates more competition in the entire audiovisual value chain. Established players (e.g. broadcasters, distributors, exhibitors, etc.) seek to retain their position while new entrants, such as telecommunications providers, internet service providers, cable operators or hardware manufacturers, set up new distribution platforms (also with the goal to further finance the take up of their equipment). At the consumer level, audiovisual consumption patterns need to be increasingly considered in the context of a proliferation of digital communications and social media. The fact that an increasing number of open European VOD platforms are directly linked to social networks illustrates that social media tools and other interactive applications enable the audiovisual industry to target more fine-grained audience demographics, and can be utilised by rights holders and media service providers to promote culturallydiverse European content. In this context, this report contains a number of case studies that illustrate that the industry is considering the opportunities of the digital shift to develop its market share. Changes to the position, duration and chronology of different release windows show that the entire industry is dealing with these transformations. However, there are also important factors that inhibit a rapid roll out of VOD which are primarily connected to limited market demand (see further below) and related gaps in finance:

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Technology allows access to be restricted on a geographical basis according to licensing terms. and by establishing more ‘one stop shops’ particularly because they are often interested in buying catalogues of rights rather than individual titles. nonexclusive licensing). and are unlikely to do so as long as their returns remain marginal compared to those of other version markets.− Distributors and broadcasters. This phase is an opportunity to develop new audiences both nationally and internationally. and few public funders have invested strategically in VOD to enable rights holders to enter VOD at an early stage. The dominant position of commercial users vis-à-vis small and medium-sized rights holders prevents the latter from acting strategically and building up a catalogue of rights for later exploitation. This penalises European rights holders. and would therefore benefit from collective approaches to facilitating rights licensing. 4 . the importance of pre-sales) has yet to occur. Market demand is forcing stakeholders to adapt their business strategies. Most individual European audiovisual companies may in the future be in a weak negotiating position when they wish to access VOD platforms on beneficial terms. does not provide minimum guarantees. traditionally important pre-financiers of audiovisual production. the requirements of commercial users and rights holders will also evolve: − VOD service providers stress the need to make rights licensing more efficient by streamlining licensing processes. − So far most new operators of digital distribution platforms have not entered into production finance. which currently characterise digital distribution (i. Further integration between these trends. It is shaping licensing practices in the sector. vintage titles. In this context.e. nor do they buy exclusive rights to exploit new works on VOD. to the benefit of commercial users and rights holders. An exception to this is the company Orange. this report identifies a number of innovative market-driven and voluntary initiatives across Europe that seek to facilitate easier rights licensing. As a result. as VOD markets across Europe grow and more players enter digital distribution. Territorial licensing continues to prevail. broadcasting and DVD. The report argues that. Rights for VOD exploitation are currently licensed on a non-exclusive and shortterm basis (two to three years). and the economic processes of the entire industry (i. titles that have not been sold in certain territories) require laborious and costly rights clearance which service providers cannot afford. − Independent production companies and talent require pre-finance from distributors and broadcasters to create audiovisual products. − Private investors so far are reluctant to bridge this financing gap. however.e. If these players are primarily interested in other version markets independents stand little chance of benefiting from VOD. which are often small entities and favours large catalogue owners such as the Hollywood studios. have little incentive to enter the VOD market given that the returns in VOD are still far smaller than in theatrical distribution. − Digital distribution of catalogue titles (older works. VOD offers primarily contain older works that have already been exploited in other windows. The great majority. The audiovisual sector is in an important phase of transition. − European rights holders also find it hard to retain rights for digital exploitation as they are often acquired by distributors and broadcasters who do not enter VOD exploitation until revenues from other windows are secured.

9% in Germany. − This relevance of the VOD market is confirmed when analysing the distribution of revenues of a sample of films examined. € 261 million). − Compared to other audiovisual version markets VOD revenues remain marginal.79% (Belgium). Significant differences exist across EU Member States. this share varies from country to country (e. economic and regulatory (territorial vs. on the demand side. would further accelerate the growth of VOD turnover. this picture is more varied when it comes to analysing the origin of films available on VOD and comparing it to. Spain and the UK outrank other Member States. this report shows that dematerialised distribution of audiovisual works allows some cost reductions. For example. However. as well as faster roll out of digital infrastructure. 22 in France. Some predicted trends in relation to technological. − On the demand side. This includes EU films.Economic analysis of the trade of audiovisual works in the European Union The current state of the market can be summarised as follows: − On the supply side. which might favour circulation of unexploited titles in certain territories. the number of VOD services and service providers in the EU is growing. 2 in Poland – indicating the different stages of development of local markets).g. However. 5 . although generally at a slower pace than VOD turnover.g. This circulation would be greater in an environment based on international licensing. In France. In theatrical distribution the share of non-national EU films is 8%. total gross value of EU works on VOD was lower than in other version markets. A more rapid development of the macro-economic factors that shape the audiovisual industry.2% (Finland) and 1. It is also reflected by other research. theatrical distribution. subscription-based business models have recently become more successful than rental and electronic sell-through (in Europe in 2008: € 283 million vs. VOD does not lead to more diverse consumption than in theatres. International licensing and/or a rapid development of macro-economic and communication facilities would lead to a greater increase in the number of VOD services. multiterritorial) factors concern all Member States: − VOD turnover will increase significantly in the next five to ten years. In the UK. Finally. Italy. The performance of France. The economic analysis projects future VOD market developments over the coming 5 – 10 years based on a number of future scenarios. On VOD. The share of VOD turnover in relation to total audiovisual turnover is estimated to be between 0. the EU VOD market represented a total turnover of € 644 million in 2008 and had increased by 250% in two years. − The number of VOD services will increase in every market. − Rental business models are chosen by the majority of VOD services in Europe (e. It depends significantly on socio-economic features (e. there are five times as many VOD services in the Netherlands as there are in Bulgaria).g. Data concerning the diversity of consumption at EU level is difficult to obtain. VOD represented 1% of the overall film audience in the UK in 2008. for example. 20% in Spain). − EU films’ circulation would increase as VOD markets expand.

For example. a regulatory environment that favours international licensing would lead to varying levels of exports and imports of audiovisual works across the EU.− International licensing would lead to greater concentration of the VOD market. Germany.e. − The representation of consumers’ interests. This is notably the case for the growth of VOD turnover. Towards a single market for audiovisual content: the legal environment How should EU policy-making promote a single market for digitised European audiovisual works and thereby strengthen the competitiveness and the cultural and social contributions of Europe’s creative industries? The main justifications and the legal basis for EU intervention in the audiovisual sector are based on EU Treaties and the Union’s international obligations: − The promotion of the internal market. as they will be competing against works which have been marketed locally in other version markets (notably those that received a theatrical release) as well as being made available on VOD. to invest more in marketing to give European programmes visibility and to ease existing copyright licensing processes notably by decrease transaction costs (see further below). − The promotion of cultural diversity and support for cultural and creative industries. notably video and pay-TV. Consequently. When their market is saturated. Greater circulation of audiovisual works does not necessarily imply greater levels of consumption. Nevertheless. countries with lower revenue per capita for audiovisual markets (i. the long-term impact of international licensing on audiovisual production funding is unclear. 6 . Portugal. due to the economies of scope and of scale described. Romania. Furthermore. fewer service providers will control most of the market. it will be challenging to compete against audiovisual works for which several technical versions have been sold on a territorial basis. Furthermore. − The implementation of competition rules. − The implementation of international treaty obligations. Slovenia) will experience much faster growth of VOD turnover than countries with higher revenue per capita (France. they have no competitive advantage over broadcasters in selling only one content version. − Telecommunications operators would benefit from a rapid development of macro-economic and communication facilities. Italy. UK). these operators have an interest in bundling VOD services together with access when it helps them to win new clients. a favoured policy option is to promote cross-border demand for digitised European audiovisual works. i. Other predicted developments vary considerably according to Member States. as it remains to be seen whether internationally-operating VOD providers will be able to meet the levels of finance that broadcasters and local distributors currently invest in the ecosystem of audiovisual finance. Some rights holders – especially those that will implement sophisticated cross-border digital marketing campaigns – will benefit from greater cross-border demand for their works.e. From an economic standpoint. Spain. however. Investment in marketing is required to allow digitised works to be consumed on a larger scale across borders. A successful VOD market would place competitive pressure on other audiovisual version markets.

The EC has clearly identified the need to facilitate rights acquisition in order to promote a digital single market. secondary EU legislation has established the country of origin principle and mandatory collective licensing in relation to cable retransmission. and in all EC directives dealing with copyright and related rights. The EU institutions have therefore taken different steps to try to reconcile internal market objectives with copyright principles. and at the same time enable rights holders to access distribution platforms and to negotiate favourable deals with them. Furthermore.Furthermore. EU authorities promote an evolution from domestic one-stop shops towards a European one. The territoriality principle has been enshrined in international law in Article 5(2) of the Berne Convention. Nevertheless there are conflicts between the territorial exercise of intellectual property rights and the principles of the free movement of goods and services across the EU. EU harmonisation of intellectual property has achieved much in removing national disparities in standards of protection in order to promote intra-community trade. On the basis of international law. − Enforcement – the right to prevent by law unauthorised exploitation of copyright-protected works. which is primarily the result of market constraints. but rather the rights licensing process underlying pan-European exploitation. − Territoriality – the right of the rights holder to decide on the geographic scope of a licence (a right linked to contractual freedom). Are there other challenges in relation to promoting a single market for digitised audiovisual works? Both rights holders as well as audiovisual media service providers would benefit from more ‘one stop shops’ and a more seamless and internationally-connected digital licensing infrastructure. They largely implement international norms which are notably enshrined in the WIPO Treaties: − Contractual freedom – the right of authors to freely decide about the terms and conditions under which they wish to exploit their works. and recognises that one-stop shops are a solution to the issue. The European Court of Justice (ECJ) has recognised the characteristics of audiovisual content exploitation which are directly linked to contractual freedom and exclusivity in the Coditel II case. However. Each of them safeguards rights holders’ abilities to exploit films and television programmes in a commercial fashion and enables them to invest in the creation of new audiovisual works. In music. Each of these principles is essential to the functioning of the audiovisual industry. these measures have so far not significantly remedied audiovisual market fragmentation in the EU. The ECJ has developed the principle of exhaustion of rights to promote parallel imports for physical goods protected by intellectual property. ECJ jurisprudence as well as EU legislation. − Exclusivity – the right to grant exclusive exploitation rights (a right linked to contractual freedom). the territorial nature of copyright can be described as “quasi-acquis communautaire”. Hence. This would lead to more efficient licensing and decrease transaction costs in the acquisition process. The ECJ has confirmed this principle when considering the compatibility of territorial exclusivity with internal market and competition rules. the “acquis communautaire” is built around four principles which are important features of the seven directives harmonising copyright and neighbouring rights legislation in the EU. It would enable VOD service providers to buy more diverse European content at lower costs. Potential 7 . it should be highlighted that the key issue in relation to making available international offers in music is not copyright territoriality.

culture and entertainment. Finally. small and medium-sized European film companies that produce two to three films per year (and constitute the vast majority of Europe’s industry) would benefit from stronger cooperation and collective initiatives. Nevertheless. Third. regulations and public policies relating to content production and distribution also influence the development of a digital single market (public funding guidelines. Requests by commercial users and rights holders to optimise the rules regarding transparency and governance of collective rights management organisations in music may. while policy debates concerning the challenges to developing a digital single market for audiovisual content in Europe primarily focus on copyright and its territorial exercise. as large European AV companies and Hollywood majors (the stakeholders who control the most economically-valuable rights) will most likely continue to license on an individual basis. The regulatory focus should therefore shift from any notion to review copyright standards (for example by considering a European copyright) to promoting more efficient and less costly licensing processes. copyright enforcement has to become more effective. etc. If investments into audiovisual creation are to continue at their current level. knowledge production. The ability of EU rights holders to act collectively to offer a catalogue of rights to VOD service providers will determine to a large extent the availability of these titles on international VOD platforms. the structure of the sector. they often do not take sufficient notice of other obstacles. important legal uncertainties continue to exist regarding the licensing of audiovisual works for digital distribution. insufficient harmonisation regarding copyright enforcement leads to legal uncertainties. 8 . the arts. In Europe European films achieved an estimated theatrical market share of 27% in 2008) whereas US films have a market share of 67%. Second. One important bottleneck to the development of a single digital market is the increasingly disparate solutions for tackling online copyright infringements across the EU at consumer level. In this context. collective management structures might play an important role in the future digital distribution of European audiovisual works. notably with regard to orphan works or the implementation of authors’ exclusive rights. Concentration in rights management is unlikely to happen in the audiovisual sector. Furthermore. VAT rules differ across the EU and distort competition between audiovisual service providers. as well as in one-stop shopping opportunities for rights acquisitions. They penalise audiovisual consumption online compared to other forms of access. or contribute to establishing an imbalance in the environment for pan-European VOD services: First. in this context. Many regulations and policies at national level either raise additional transaction costs for cross-border trade of audiovisual works. also benefit rights licensing in other creative content sectors. Despite significant regulatory and judicial efforts to mitigate the exercise of copyright. Copyright is a key economic institution designed to stimulate creativity. which is essentially linked to audiovisual economics and to linguistic and cultural consumer preferences.providers are first and foremost interested in greater transparency with regard to the availability of rights at international level. rating systems.). remains fragmented.

To ease licensing practices the EU should promote the establishment of internationally-connected digital rights-licensing infrastructures. Further legal harmonisation Further legal harmonisation – or at least an examination of the potential impact of such harmonisation – is further suggested to promote the digital single market: 9 . inter-operability between existing services and tools. The audiovisual sector – a vital part of Europe’s increasingly important and recognised creative industries – is considering the digital shift as an opportunity to access new markets. to jointly formulate strategies that enable them to monetise their digital rights on national and international VOD platforms.7 billion people worldwide are now online and broadband connects 56% of European households. increased international availability of audiovisual works will by itself not lead to a significant increase in cross-border demand for such works. One relates to efforts to further promote the emergence of an internal market. However. Copyright.Conclusions and policy recommendations More than 1. all three are important business practices that help rights holders to maximise their returns on investment in a high-risk industry. It should also support the multitude of small and medium-sized European audiovisual companies to collaborate. public policy should also help audiovisual SMEs to implement digital marketing strategies to reach wider audiences. This would eventually contribute to the establishment of more seamless and internationally-connected licensing infrastructures. an industry in which audiovisual works are valued differently by each consumer and in each market. on a voluntary basis. Consequently. consumer demand needs to be stimulated. due to the fact that they are ‘experience’ goods. There are two sets of policy recommendations. I. Recommendations to support the establishment of a single market for digitised European audiovisual works Decrease transaction costs Two sets of measures are considered to contribute to the establishment of a licensing infrastructure in Europe that would be more conducive to cross-border trading of audiovisual works and better access for European audiovisual works to digital platforms: > > The EC should give support to European rights holders to establish voluntary collective licensing initiatives and mechanisms to access VOD platforms on fair terms and offer easier and cheaper licensing solutions to operators. related rights and their exercise are essential to the success of Europe’s audiovisual sector. bundling and price discrimination. as well as stronger co-operation between rights holders. In cultural markets. Copyright standards are therefore not a bottleneck to the emergence of a single market – the real issue is the rights licensing process. and the other to measures that promote cultural and industrial policy objectives. users and technology stakeholders. They provide rights holders with a mechanism for content versioning. The EC should also promote ‘one stop shop’ solutions developed by the market.

the current impact assessment by DG Internal Market in relation to orphan works should encourage the EC to consider audiovisual in the scope of the future draft directive that is announced for the end of 2010. public funding agencies and industry associations to help establish a range of support projects that promote a European dimension in VOD development. As regards easier licensing mechanisms for orphan works. > > Marketing support should be given to films that win awards at A-list festivals or European prizes. Considering the predicted growing importance of collective rights management. A reduced VAT rate for VOD transactions. The commissioning of an impact assessment concerning the application of the country of origin principle for the distribution of audiovisual content on digital networks. II Recommendations to promote cultural diversity and a competitive European creative sector Creating demand for European audiovisual works The EC should support the European audiovisual sector in developing and implementing innovative marketing and branding strategies to reach new audiences. > Coordination with Member States Further co-ordination efforts with governments and public sector agencies in Member States and regions should be undertaken: > > Encourage national agencies in developing common descriptive criteria for national ratings. among other suggestions. the EC should take the lead in promoting more effective practices across the European Union. Funds should be available to develop and adapt digital applications that help to understand 10 . This includes. it is proposed to introduce a framework directive that promotes greater transparency and governance requirements for collective rights management bodies. coupled with a mandatory collective licensing regime in relation to the simultaneous and unabridged digital distribution of TV programmes. to further encourage international VOD releases and promote European cinema and its image. Network national and regional audiovisual policy makers. It should promote the use of signalling techniques and standardisation of ratings through different media (not necessarily across borders). as well as an impact assessment concerning the appropriateness and effects of the graduated response mechanisms in Member States. EU support programmes should give more support to rights holders who wish to further fine-tune and implement their digital marketing strategies in order to access video-on-demand markets. similar to those that apply to the sale of theatrical tickets. a proposal to introduce new legislation to harmonise criminal sanctions.> > As regards copyright enforcement. should be introduced. Other recommendations to promote the single market suggest: > > > That the EC enables authors’ societies to collect remuneration on behalf of authors when their works are exploited abroad: An unwaivable equitable right to remuneration for the “making available right” should be introduced.

Lifelong Learning. FP7/8. This would allow them to build up a catalogue of rights to experiment and make the most of digital distribution. and test new business models. 11 . > > > > Finally.. as well as an innovation voucher scheme specifically tailored for the needs of the European film industry. rather than selling them in bundles with other exploitation rights. More flexible or shorter release windows should be considered.> consumer behaviour. Culture. Europeana.) need to be more in sync. its general awareness of new information technology trends and its understanding of new consumption behavior. The MEDIA Programme should continue to encourage subtitling and dubbing to enable crossborder access to foreign language content. Better co-operation efforts within the sector must be reflected by the public sector. Training programmes to develop these capacities. > The EC should promote the idea that a share of public support given to producers in the EU should allow those that wish to do so to retain some rights for digital exploitation. are suggested in this respect. facilitate closer engagement with target audiences through social media. EU programmes and projects that could be to the benefit of VOD (MEDIA. Support risk taking and innovation Public policy should encourage EU rights holders to experiment with new forms of digital distribution and test new business models in order to understand the new market place and its requirements. in particular with theatre owners in relation to European titles that were given no or limited theatrical release. the sector must develop its skills relevant to the new digital market place. Broadcasters and digital operators should be encouraged to return digital distribution rights to independent producers after a certain period of time and/or if these rights remained unexploited. Film-funding bodies across Europe should consider the establishment of audiovisual innovation funds linked to existing technology innovation funds. etc. CIP ICT PSP (Digital Libraries).

....................3....................................................... 14 CHAPTER I......................................... 16 SOME PRELIMINARY REMARKS ON THE STATE OF THE VOD MARKET ......1.............4 Recent EC decisions concerning the exercise of copyright in music.........2...................................................................................2 Structure of the sector .. 9 FOREWORD...........................................................................1........................ 2 THE ECONOMICS OF THE AUDIOVISUAL INDUSTRY AND CURRENT TRENDS IN DIGITAL DISTRIBUTION ......................1 Internal market justifications .. 33 2...................................1....................................................................................................................2..................................................................... 70 3..............................................................3 EU competition rules and territoriality ..2 The circulation of audiovisual works in the EU and potential implications for the digital circulation of audiovisual works ............................ 70 DEVELOPMENT OF DIGITAL TRADE OF AUDIOVISUAL WORKS IN THE EUROPEAN UNION: ECONOMIC ANALYSIS ...........................................2.........................................................................................1............... 102 3....... 136 4......... 16 TURNING THE DIGITAL SHIFT INTO AN OPPORTUNITY FOR CONSUMERS AND THE AUDIOVISUAL INDUSTRY ....................3 The cultural justification .. 24 2...2 OUTLOOK AND IMPACT ANALYSIS.........................................................................1 Analysing the emergence of VOD ............. 155 4............ 70 3......4 Impact of digital distribution on industry practices .........................................................1 THE JUSTIFICATIONS AND LEGAL BASIS FOR EU INTERVENTIONS IN AUDIOVISUAL ............................ 156 4.....2 Conclusion of the outlook: impact on EU rights holders ......2 Actions taken to mitigate the impact of IP territoriality ....................................................................................................... 129 4..............................................1 Economic and cultural outlooks over five to ten years...................................2........ 135 4.......................................1..............1................................................... 138 4..............................................1 ECONOMIC ASSESSMENT OF THE POTENTIAL DEVELOPMENT OF DIGITAL TRADE OF AUDIOVISUAL WORKS IN THE EU .................................... 17 WHY IS THIS RELEVANT FOR THE EU? .. 159 4............................................................................................................................................................ 21 PRESENTATION OF THE STUDY .........................2................................... 144 4.......................................1 1.............................................................................3 Impact on the audiovisual ecosystem ...............................................................2 EC competition justifications ............. 39 2..................................................................................................................................................................................................................... 83 3........................................................................................................................................................................2 THE IMPACT OF DIGITAL TECHNOLOGY ON CONTENT DISTRIBUTION IN THE EU ............................... 70 3...... 134 4.................................................................................3 Conclusion ............................... 5 TOWARDS A SINGLE MARKET FOR AUDIOVISUAL CONTENT: THE LEGAL ENVIRONMENT.............................................................................................................................TABLE OF CONTENTS EXECUTIVE SUMMARY ................................................................................................................. 6 CONCLUSIONS AND POLICY RECOMMENDATIONS........................................................2..... 126 CHAPTER IV ..... 39 2......................................................1...................................................................................................................................4 Justifications based on protecting consumers ...........................................................................3 LEGAL AND REGULATORY OBSTACLES TO CROSS-BORDER LICENSING ACTIVITIES ................................................................................................... 2 ECONOMIC ANALYSIS OF THE TRADE OF AUDIOVISUAL WORKS IN THE EUROPEAN UNION ..........................................2...... 55 CHAPTER III.2..............5 Justifications based on international obligations.............................................................................................................1 Context – the digital shift and the emergence of VOD. 137 4..........1....................................... 23 2............................................. 1................. 104 3......5 A secondary multi-territory licence system? .............................................................................................................. 47 2.................... 129 TOWARDS A EUROPEAN DIGITAL SINGLE MARKET: THE LEGAL ENVIRONMENT ........................................................................................... 23 2..................... 136 4..................................... 1............................................................................................................................................1................................ 23 THE EUROPEAN AUDIOVISUAL SECTOR AND DIGITAL DISTRIBUTION ........ 40 2.................................................................................2 THE COMMUNITY ACQUIS IN RELATION TO CROSS-BORDER LICENSING OF AUDIOVISUAL CONTENT ...............................................................2........................................................................ 103 3............1......................... 161 12 .......................................1 THE SPECIFICITY OF THE EUROPEAN AUDIOVISUAL SECTOR .................................. 138 4............... 21 CHAPTER II................2 Impact on consumer behaviour ..................4 ABOUT THE ASSIGNMENT ...........................................2......................................................................................................1 Audiovisual distribution economics ............................................................................................................................. 133 4.....................................................2..............1 Main principles governing copyright in the EU .................................................. 16 1.........................................................................................................................................................................................2......................................................................................................................

..........................4....3.... 187 5.................... 177 4.. 198 13 .................................................................1 National disparities in copyright enforcement: a threat to the digital single market? .................................................. 187 POLICY RECOMMENDATIONS AND CONCLUSIONS...................................................................... support policies and the digital shift .....................................................................................2 5....... 184 CHAPTER V ............2 The need to further harmonise copyright and neighbouring rights rules ................................................................................................................3.......................3 KEY FINDINGS ....................................................................................................3............................................4 CONCLUSION ............................................................................................. 169 4... 187 POLICY OBJECTIVES . 197 POLICY RECOMMENDATIONS ...................3............................................................................................................................................................ 161 4....................3 The complex and discriminatory VAT regime .........................4 National audiovisual content regulations............................................1 5......................................................................................... 179 4...............................

It also gave important input into the content of Section 2. data concerning the performance of specific titles in different version markets was collected to analyse the circulation of audiovisual works across borders.2) and the presentation of the specificity of the European audiovisual sector (Section 2. a Brussels-based consultancy specialising in culture and the creative. To complete the economic analysis and project the development of VOD markets across the EU a typology of audiovisual markets has been developed (see Section 2.2. The team applied a two-pronged research strategy. which specialises in digital economy issues.1 and 3. For the overview of legal and policy issues in Member States and the analysis of certain business practices a questionnaire was sent out to our contacts in all Member States and either completed by these contacts in writing or on the basis of telephone consultations. The adopted definition of multi-territory licensing for the purpose of this report is “the licensing of intellectual property rights for a content version for more than one jurisdictional territory at a time. the Lab for Industrial Economics of Mines ParisTech.1). KEA closely collaborated with Cerna. consultations and interviews with 105 stakeholders and experts have been conducted. provided in the appendices. Much of the analysis and the policy recommendations have been developed in collaboration. More detailed information concerning the economic data used. This definition is in accordance with official European definitions. Furthermore. It includes all digital linear systems coupled with digital video recorders. sport and entertainment industries.2 and Chapter IV. The assignment has been carried out between January 2009 and July 2010. For part of the review of national legislation and policies KEA relied on a network of local experts who made contributions to the study. FOREWORD This study has been prepared for the European Commission (Directorate General Information Society and Media) and deals with the question of how best to promote a Digital Single Market for audiovisual content in the European Union (EU). KEA also carried out most of the interviews conducted during the assignment. In total. A consultation list and a bibliography are included in the appendices. All chapters substantially draw on the insights that surfaced during these conversations. consisting of desk research and primary data gathering to prepare this final report. The legal profiles of the Member 1 Own working definition.The opinions expressed in this study are those of the authors and do not necessarily reflect the views of the European Commission. It investigates how copyright licensing relates to this endeavour and examines further factors that influence the development of an internal market for creative content. the development of the sample of films and the development of the typologies can be found in the appendices. The research consortium was managed by KEA European Affairs (KEA).1). A complete glossary of terms is also provided in the Appendices. media. Section 2. 14 .”1 Video on Demand (VOD) is a non-linear intangible audiovisual content version. Cerna had principal responsibility for the economics analysis (Sections 3. KEA had overall responsibility for the final draft of this report and has had the principal role in writing the introduction.

To gather feedback and input from stakeholders. 15 . a workshop was held at the European Commission’s premises on 2 June 2010.States are included in the appendices and results from the questionnaire are widely used in the analysis of legal and policy issues in Chapter IV.

Telecommunications and Energy Council Brussels. Brussels 3 March 2010. 7 European Commission Reflection Document on Content online in a European Digital Single Market. 5 Communication from the Commission to the European Parliament. the Council. 9 July 2009. Brussels. 16 . 1. 31 May 2010 6 Communication from the Commission to the European Parliament. 9 Speech by Viviane Reding. many further Communications and Directives are relevant in this context – these will be introduced and analysed throughout this study but shall not all be listed here. 3 January 2008.A European strategy for smart. higher definition (HD. the European Economic and Social Committee and the Committee of the Regions on Creative Content Online in the Single Market. VOD is one of several industry attempts to benefit from digital distribution2. The European Commission (EC) has outlined suggestions and proposals of how to best promote the development of this market. 3 Theatrical admissions illustrate the continuing weakness of the internal market for European audiovisual content: the share of admissions of non-national European films in EU cinemas has remained around 8% for the past decade. the European Economic and Social Committee and the Committee of the Regions.CHAPTER I TURNING THE DIGITAL SHIFT INTO AN OPPORTUNITY FOR CONSUMERS AND THE AUDIOVISUAL INDUSTRY Digital technology transforms the audiovisual consumer experience and enables the audiovisual industry to produce.obs. VOD may offer the sector the opportunity to become more sustainable. Better results are seen for European films on their home markets. COM(2010) 2020 and Conclusions from the European Council adopted on 17 June 2010. Brussels 19 May 2010.int/about/oea/pr/mif2004. Europe 2020 . at Digital Europe – Europe's Fast Track to Economic Recovery. the European Economic and Social Committee and the Committee of the Regions on a European agenda for culture in a globalizing world. EU Commissioner for Telecommunications and Media. Consumers can now enjoy a variety of films and television programmes by a simple click on a mouse or remote control. Naturally. See: EAO press release (2004). the Council. 22 October 2009. Blu-ray). A Digital Agenda for Europe.1 About the assignment A competitive and culturally diverse single market for digital audiovisual content is one of the key objectives of the EU 2020 strategy4 and the EC’s Digital Agenda for Europe5.and the European agenda for culture6. COM(2007) 242 final. but circulation abroad disappoints (www. The European audiovisual industry is at the moment highly fragmented3. Com (2010) 245 adopted on 31 May 2010 by the 3017th Transport. sustainable and inclusive growth. In her most recent comment on the launch of the Reflection Document. Commissioner Reding outlined the EC’s plans as follows9: 2 Together with DBS. 8 Communication from the Commission to the European Parliament. etc. most recently in its Reflection Document on creative content in a digital single market7 and the previous Communication on creative content online8. The European Commission wishes to assist the sector in creating greater cross-border demand for digital content and asks what can be done to achieve this objective. 4 Communication from the European Commission. 3D.html).coe. Brussels 10 May 2007. COM(2007) 836 final. This report specifically deals with the relationship between digital distribution and the ambition to create an internal market for European audiovisual content. It has the potential to provide new revenue streams for audiovisual companies and may unleash the economic and cultural potential of creative content. expand the international reach of European creators and generally increase cultural output in Europe. The Ludwig Erhard Lecture 2009. the Council. DTB. both nationally and internationally. distribute and exploit audiovisual works in novel ways.

"Copyright and the internet are two powerful engines for driving creativity and innovation for the benefit of all Europeans. They should be combined in the new project of a competitive and prosperous Digital Single Market. Such a Digital Single Market can only be built with content creators on board; and with the generation of digital natives as interested users and innovative consumers… It will be my key priority over the next years to work, in cooperation with other Commissioners, on a simple, consumerfriendly legal framework for making digital content available across borders in the EU, while ensuring at the same time a robust protection of copyright and a fair remuneration of creators." The Digital Agenda for Europe for reconfirms the reciprocal ambitions to create a digital single market for creative content and to ensure robust protection of copyright10. The EC’s overall objectives can therefore be summarised as follows:
− to build an internal market for creative content − to support the emergence of digital audiovisual services in Europe − to make Europe’s audiovisual industry more competitive − to promote cultural diversity throughout Europe − to increase citizens’ and consumers’ ability to access a wide range of cultural content on legitimate

terms Some take the view that copyright and neighbouring rights, and the way such rights are exercised, are an impediment to achieving these objectives. The issue of rights licensing has therefore been subject to intense policy scrutiny from EC competition and internal market regulators. This study analyses the economic and legal consequences of digital distribution for the audiovisual sector, and examines whether and how policy measures could help the sector to benefit from the digital shift and new consumption patterns. The Commission has set the following general objectives for the assignment:
− Analysis of the legal framework and prevailing practices for the licensing of audiovisual works for

online distribution in Member States
− Detailed description of the structure of the online distribution sector, and its related market, in the

EU Member States
− Assessment of the present and future main challenges for the development of a multi-territory

business model in the different Members States, and possibly the Union as a whole
− Analysis of economic and cultural consequences that could be the result of the development of a

multi-territory distribution business model
− Description of policy options that could foster the development of multi-territory distribution

mechanisms and business models for online distribution of audiovisual works

1.2.

Some preliminary remarks on the state of the VOD market

There are many signs that content distribution is undergoing important transformations across different media sectors (publishing, music, film, video games, broadcasting). European rights holders and policy
10 A Digital Agenda for Europe, p. 8 17

makers cannot ignore those changes if they wish to foster a sustainable audiovisual industry. At the same time the development of the VOD market presents many uncertainties which explain the reluctance to embrace its potential by some players. One of these is the limited value of the market. For example, in France, VOD represents 3.6% of household expenditure on DVD and home video (i.e. only 0.7% of household expenditure on audiovisual programmes). Hence, while the offer of VOD in Europe has generally increased – the European Audiovisual Observatory counts close to 700 on-demand services (including catch-up services) throughout Europe11 – the demand for VOD still remains marginal. However, the following developments indicate that there is a fundamental shift in how consumers and the industry value VOD:
− Consumers are spending more and more time on the internet. They like the interactivity of the

medium and the choice and freedom it offers. It competes for audiences’ limited time attention with other media, including broadcasting and theatrical exhibition. The digital shift therefore cannot be ignored. Latest figures show how niche outlets of audiovisual content are increasingly challenging the market share of large networks12. In addition online advertising revenues in Europe grew by 4,5% last year, whereas television advertising returns dropped13. Furthermore consumers play a vital role in promoting films among their peer groups through comments on blogs, their Twitter posts and video sharing accounts, thereby challenging established audiovisual distribution and exploitation processes and creating new marketing opportunities for audiovisual companies that are not vertically integrated.
− Technology is bringing internet-based VOD closer to the television set, which continues to dominate

home entertainment. Approximately 8% of all flatscreen televisions sold in the US in 2009 were internet-enabled and game consoles are also increasingly VOD enabled14. TV manufacturers such as Sony, Philips and Samsung, main game console manufacturers (Sony, Microsoft, Nintendo), Apple (Apple TV) and more recently Google (Google TV) are aggressively trying to tap into the market for so-called over-the-top TV. Broadcasters such as TF1, M6 and Canal+ in France or Project Canvas in the UK are working together with technology companies to deliver new services to their audiences.
− Moreover, as the take up of broadband across the EU continues – approximately 56% of all

European households have broadband access at home today – more and more consumers are able to access internet-based VOD services15. Regarding consumer choice and mobility, time and place-shifting devices such as TiVo and Slingbox increasingly allow viewers to decide when and where they wish to watch a television programme. While it does not replace or substitute the need to promote audiovisual works or bundle attractive content, search mechanisms for audiovisual content may increasingly resemble search on the internet (including the use of recommendation systems). This may offer rights holders the opportunity to access new audiences and experiment with new models of monetisation.
− New entrants in film distribution such as internet companies (Google/YouTube, Apple/iTunes,

Microsoft/xBox, Netflix and others) are entering into content acquisition with major catalogue
11 European Audiovisual Observatory, DDM & NPA Conseil, Video on demand and catch-up television in Europe, October 2009. 12 See Karbasfrooshan, Ashkan, Context is King: How Videos are Found and Consumed Online, TechCrunch, 30 January 2010. 13 IAB Europe, Europe’s online ad market continues to grow despite recession, 2 June 2010 14 McBride, Sarah, Studios make bigger push for digital sales, Wall Street Journal, 29 December 2009. 15 Eurostat. Data in Focus: Internet usage in 2009 – Households and individuals, December 2009, p. 1. 18

owners16. For the moment, these platforms rarely acquire rights from European content owners, a fact which may start to threaten the European audiovisual industry. Reasons for this are multifaceted (they include market demand but also complicated licensing mechanisms in the EU) and will be examined throughout this report.
− YouTube has concluded agreements with Warner Bros and Disney and entered into talks with

Lionsgate and MGM17. More recently it announced the launch of a film rental service that will offer independent content in the near future18. This will complement its current number of two billion free video streams per day which is “nearly double the prime-time audience of all three major U.S. television networks combined” 19 and is inciting more and more platforms to develop cross-border VOD offerings. Netflix, the online DVD sales provider, has established its own on demand platform. Hulu, an advertising-based VOD service, already reached revenues of $ 70 million and a 15% profit margin in its first operating year (2008). In 2009, Hulu entered into first negotiations with European content providers20 and is now also looking to establish a subscription-based version in the near future, thereby reflecting a trend towards paid digital content business models21. At the same time in the book industry, Amazon announced that ebooks on its Kindle outsold paper versions on Christmas Day of 200922.

− Major telecommunication operators and cable companies are building and expanding their VOD

offers to offset investments into technological infrastructure (see Chapter II). They are also closely following the “buy once, watch anywhere” services currently being developed by US cable companies under the name TV Everywhere23. At the end of 2009 the largest US cable company, ComCast, bought a 51% stake in NBC Universal (which includes Universal Pictures) in a deal worth $ 13.75 billion, in their pursuit to “become a leader in the development and distribution of multiplatform 'anytime, anywhere' media that American consumers are demanding”24. In Europe, the potential market for VOD via these operators is rapidly increasing. Digital television households in Western Europe alone grew from 99 million during 2009 to more than 119 million, or 69% of total television households25. If not already, these consumers may soon have access to VOD services, indicating a major shift in how Europeans can consume content.
− Hollywood has started taking VOD very seriously due to reduced revenues from the industry’s main

revenue source, DVD. DVD sales in the US tumbled from 37 billion units during their peak in 2004, to 25 billion units at the end of 200826. Worldwide DVD revenues declined 12.7% during this period, still generating 43% of total revenues, but saw an even sharper drop of 13% during 200927. Warner is at the forefront of an aggressive VOD strategy aiming to make as many legal offers available as
16 All major studios licence their titles to iTunes, the majority also to xBox. Screen Digest stated that in the US iTunes already has a 52% market share of VOD rentals, followed by Microsoft’s Xbox with 31% (Conf. presentation of Arash Amel at the Digital Media Pipeline conference, 15 Sep 2009). For insight into Netflix’ strategy see PaidContent (22 October 2009) Netflix To Take Its Streaming Business International Next Year, and PaidContent (6 January 2010) Netflix Agrees To Warner’s New Release Delay In Exchange For More Streaming Rights. 17 Ostrow, Adam, YouTube Debuts Movie Rentals, Mashable, 20 January 2010. 18 Kramer, Staci, YouTube Will Use Sundance Film Festival To Test Rentals, PaidContent, 20 January 2010. 19 Hurley, Chad, At five years, two billion views per day and counting, The Official YouTube Blog, 16 May 2010. 20 Barnett, Emma, Hulu UK launch delayed until 2010, Telegraph UK, 24 August 2009. 21 See for instance Triumph of the Monthly Bill, The Economist, 10 October 2009. 22 Amazon, On Christmas Day, for the First Time Ever, Customers Purchased More Kindle Books Than Physical Books, Press Release, 26 December 2009. 23 Time Warner, Time Warner Inc. Announces Widespread Distribution of Cable TV Content Online, Press Release, 24 June 2009. 24 Comcast and NBC form media giant, BBC News, 3 December 2009. 25 E-Media Institute, Digital TV forecasts for Western Europe (19 countries), December 2009. 26 Stone, Brad, Trying to Add Portability to Movie Files, The New York Times, 4 January 2010. 27 Tom Adams, Adams Media Research, as quoted by Ayuso, Rocio, Pelicula de terror en Hollywood, El Pais, 18 Oct 2009 and Sandoval Greg, Time for Apple to get serious about video, CNet, 25 Feb 2010, http://news.cnet.com/8301-31001_3-10459494-261.html 19

possible to exploit its 6000 title catalogue online on a non-exclusive basis28. Together with most other majors and large hardware manufacturers (excluding Apple) it has started addressing interoperability issues and access to different content versions last year through the Digital Entertainment Content Ecosystem29. In 2010, Disney introduced a comparable system called KeyChest. Meanwhile, its CEO Robert Iger has reorganised the company and announced plans to shrink windows between releases and push for various home video options30.
− Broadcasters continue to create an attractive VOD offer to compete with new entrants. The BBC

iPlayer is one example offering a successful catch-up service (which since 2010 also provides links to other broadcasters) with over 500 million views since December 200731. A total number of 240 catch-up services had emerged across Europe by the end of 200832. Canal+ has extended its VOD catalogues to 6000 films33.
− In the music industry digital sales grew 940% between 2004 and 2009 (while the total market for

recorded music decreased by 30% in the same period)34.

These trends indicate that the audiovisual industry is increasingly interested in digital distribution and betting on VOD. According to Screen Digest, VOD turnover in Europe is expected to grow to approximately € 2.2 billion in 2013 (see economic analysis). US majors, telecommunication and cable companies as well as internet businesses are positioning themselves to broaden their audiovisual services internationally. In Europe, audiovisual investments are primarily made by existing industry players. Broadcasters like Canal+, or distributors such as Wild Bunch, share a major part of the costs and risks involved in audiovisual creation and distribution. Despite the above trends, players are also cautious to make risky large investments into the roll out of a new version market that may cannibalise the overall value of all audiovisual markets. Moreover, investments in the European sector are made on a national basis. The question is therefore how Europe’s audiovisual companies can influence these trends in order to access more international markets and develop legitimate and profitable VOD offers.

28 Interview with Marc Gareton, Warner, Senior VP Digital Distribution Europe, January 2009. 29 Netherby, Jennifer, Digital Cloud’s Dark Lining: Fears of Apple entry loom over buy-once plans, Variety Magazine. 30 Goldstein, Patrick, Is there a master plan behind Disney's house cleaning?, LA Times, 12 January 2010. 31 EBU, Factbook Innovation, 3 December 2009 32 Audiovisual Observatory (2009) Video on Demand and Catch-up TV in Europe 33 Number of titles on Canalplay.com 34 IFPI Digital Music Report 2010 20

The Economy of Culture in Europe. audiovisual is an important driver of innovation throughout Europe’s knowledge economy.cit. Developing a sound strategy for VOD would help to change this situation and at the same time promote cultural exchange throughout Europe as well as beyond its borders. limited marketing strength to reach international audiences. 21 . European legislation in diverse fields including copyright. op. 2006. the global market would become more easily accessible for these European providers as well. As such.8 million people work in the creative industries and generate more than € 654 billion in turnover annually37.1.eu.keanet. In addition to this. EU policy and support also play an important role in shaping European audiovisual support systems to better prepare the industry for digital distribution. Finally. and examines how digital technology impacts on audiovisual content distribution. It outlines how the high35 The development of a digital single market for content services has been mentioned as a priority in the European Commission’s Communication on Europe 2020 36 Communication on a European agenda for culture in a globalising world. with all its positive consequences for EU culture and economic growth. creative content drives the uptake of broadband. The EU will have spent approximately € 755 million on promoting audiovisual distribution between 2007 and 2013 (through MEDIA 2007). This has been recognised by the European agenda for culture36 and promoted by the European Year on Creativity and Innovation. But for audiovisual a European single market today primarily exists for Hollywood content. The cultural and creative industries are one of the fastest-growing sectors in the economy and audiovisual content is a key driver of growth for the sector. broadcasting and non-linear services has sought to address this issue (see Chapter IV). such as the ICT and consumer electronics industries. 37 KEA European Affairs. the development of the European audiovisual industry has for the past 20 years been an important policy priority for the EU. once EU providers and creators of content have access to a larger well-functioning EU market. consumer electronics and internet services. The European Commission has put digital on the top of its policy agenda35. but also positions the sector as a strategic industry that has important impacts on other sectors. the European Commission perceives digital technology to be an opportunity to overcome some of the structural challenges that have hampered the development of the European audiovisual industry in the past (lack of vertical integration. Why is this relevant for the EU? There are several reasons why these developments and challenges matter to EU policymaking: First.3. feeble valuation of copyright in trading terms with users).4 Presentation of the Study The study is divided into four further Chapters in addition to this Introduction: Chapter II: The European audiovisual sector and digital distribution This Chapter includes an introduction to the specifics of the European audiovisual industry. Importantly. DG Education and Culture. As noted in KEA’s study on the Economy of Culture in Europe. 1. Second. This makes audiovisual not only important in terms of employment and growth. Over one million people are employed in the audiovisual sector alone in the European Union. EU policymakers have in recent years increasingly realised that the cultural and creative industries are an important driver of European competitiveness and innovation. However cross-border circulation remains relatively modest and European films only play a marginal role in third countries’ film markets. available on www. study prepared for the European Commission. 5. e-commerce.

a more detailed methodology. further information concerning the data collected for the economic and the legal strands of this assignment. Subsequently. Consequently. the Chapter assesses other circumstances. VOD revenues still remain marginal compared to other version markets. thereby offering rights holders the chance to access new markets. 22 . However. Finally. Chapter IV: Towards a digital single market: the legal environment This Chapter contains a detailed review of legal frameworks and public policies – both at European and at Member State level – in relation to the digital single market for audiovisual content. It then projects the development of VOD markets and the potential for more cross-border trade over the coming five to ten years depending on a number of regulatory. the Chapter analyses the circulation of European audiovisual works on VOD in relation to circulation in other version markets. Challenges regarding copyright enforcement that have emerged due to digital technology are examined in detail. and projects the development of digital distribution over the coming years based on scenarios provided by the client.risk business of European audiovisual content distribution and exploitation is shaped by the experiential character of media content. versioning and price discrimination to maximise returns on investment in different markets. technical and macro-economic scenarios. from the demand side and despite important growth. After a short update on recent EU policy developments. several case studies and the bibliography. it also shows that. that might eventually influence rights holders’ abilities to fully benefit from cross-border trade in Europe. and important principles underlying regulatory interventions regarding the exercise of copyright are identified. First. the European legal framework applicable to international audiovisual content distribution is assessed. The Appendices include a list of interviewees. establish policy objectives and subsequently suggest a range of recommendations for the European Commission to support the development of a digital single market for EU audiovisual content. The Chapter then outlines how a range of technological and market developments influence consumer behaviour and challenge the traditional dynamics of the audiovisual ecosystem. Chapter V: Conclusions and policy recommendations The conclusions and policy recommendations summarise the key findings of the assignment. as well as by diverging consumer demand across Europe. Chapter III: Economic analysis and assessment of the development of digital trade of audiovisual works in the European Union Chapter III presents the economic analysis requested in the tender specification. an analysis of the current state of VOD markets in Europe shows that the VOD offer is experiencing significant growth across the EU. mostly relating to national laws and policies. rights holders use content bundling.

The sector is distinctive in several ways. with a clear distinction between technical and cultural versioning. − the fact that media carry meaning. Firstly. economic and regulatory circumstances across the EU. Section 2. Versioning strategies are fundamental in complex competitive games in the audiovisual sector. Marketing audiovisual works to create specific target markets is therefore an important exercise in the industry. the European audiovisual industry is highly fragmented along linguistic and cultural borders. Finally. Section 2. 23 . rights holders depend on a complex process of content versioning and bundling to maximise returns on investment. exploitation.1 will examine these issues and then propose a typology for audiovisual content markets on which the report’s further economic assessment is based. The single market for films and television programmes of most EU rights holders is – so far – a distant dream. production finance and marketing are outlined. Finally. while facing a high-risk market in which the audiovisual experience is valued differently by each consumer. 255 and 318. Changing industry practices regarding rights licensing. p. 193. outlining how a range of technological and market developments might influence consumer behaviour and challenge the traditional dynamics of the audiovisual ecosystem. € 31 billion for television advertising) and is expected to grow to € 115 billion by 201338. Section 2.2 will explore how these shifts may provide European rights holders with the opportunity to reach new international markets in the medium to long term.CHAPTER II THE EUROPEAN AUDIOVISUAL SECTOR AND DIGITAL DISTRIBUTION In 2008 the European audiovisual market was valued at € 96 billion (€ 17 billion for filmed entertainment. The patchwork of different audiovisual markets in Europe is a result of diverging consumer preferences and varying technological. 2.1 concludes with a proposal of a typology of audiovisual markets in the EU to inform our future economic analysis concerning the development of an internal market for digital content. 2. June 2009.1 The specificity of the European audiovisual sector The audiovisual sector’s key characteristics are: − the importance of externalities of media and their resulting regulation through copyright. 38 PWC Global Entertainment and Media Outlook 2009-2013. € 48 billion for television subscriptions and license fees. It is a key branch of the creative industries and enjoys a high degree of policy consideration due to its cultural and economic importance. it depends on the institution of copyright to reward content creation. Secondly.2 will then look at how digital technology impacts on audiovisual content distribution. in an economic environment that is characterised by significant sunk costs. − the role of price discrimination in rights holders’ strategies to earn revenues Versioning is a crucial issue for the audiovisual industry.

Such confusion exists in the very expression ‘Information Society’ which. according to the digital definition of information. These regulations are a result of the historical roll39 See Varian. It briefly describes: − the economic role of copyright in a digital environment − the vertical relationships deriving from these − media marketing rules. Hal.1. Harvard Business School Press. to censorship rules to prevent disinformation and social disorder. Such a radical change in the definition and the utility of the word ‘information’ requires an associated change in the language used to describe the economics of media industries. A private conversation.1.2. but also transforms the very definition of ‘information’ itself. but in the operations of creating. a signal transmitted between two machines. Carl. 40 If those operations are not explicitly considered and internalised into the economy. copying and signalling this meaningful material to target markets. iron or oil. This situation is confusing as it is often forgotten that the valuable utility of the media did not consist in the support by itself. 24 . 2. an Information Society does not yet make a Knowledge Society. selecting. whatever the format39. In the analogue world. editing.1 Audiovisual distribution economics The goal of Section 2.1. Today. Digitisation not only generates new means of content distribution. Information Rules. formatting and signalling meaningful material40. which will be briefly outlined in the following.1 Media economic patterns Media are specific information goods and services that have particular characteristics. selecting. Digital information systems such as mobile networks or the internet carry unformatted information. an opera or a painting can equally be called information. The wording ‘European digital market’ also carries this confusion: the bit as the elementary piece of a code cannot be considered as a product or service designating a market. because the way in which its meaning is created and valued is not comparable with the economics of physical commodities.1 is to provide a common vocabulary and references to explain the microeconomic rules of the media sector. These regulations might include anything from incentives for producing valuable media content. ‘information’ meant meaningful material which was formatted for specific media. media create strong externalities which often cause idiosyncratic regulations. This is especially irrelevant to media when the meaning issued from one culture must address 23 different languages. a piece of software. adjusting. information was associated with the existence of physical support and therefore meaningful content was formatted and conveyed to specific markets. Key activities of the media industry included creating. means Society of the Bit. However. ‘information’ is anything that can be encoded as a stream of bits. and Shapiro. then any bit emitter can be called a media producer. It is not the atom of a commodity comparable to coal. information was quite often a synonym of knowledge. 1999. the value of which is proportional to the mass or to the fuel content. This is also true for media: meaningful content is not a commodity. The economic principles of copyright First of all.1. In other words. due to digitisation. As a consequence. and − competition patterns in the audiovisual distribution market.

In some cases where copyright exploitation would generate high transaction costs. Such licences take the form of levies based upon the turnover of specific markets. but is now being challenged by the roll out of new media markets. giving them a significant production and distribution risk. 41 While the United States have built up their political institutions alongside the development of a widespread printed media industry. such as distribution networks43. it is generally agreed that if property rights are clearly defined and the agents in a position to freely negotiate. 25 . rules governing intellectual property play an essential role in media economics. but they all share a property rule granting the rights holder a temporary exploitation monopoly. This property right operates both as an incentive to create media content with a market value. Europe is disadvantaged by the existence of its twenty three separate linguistic markets and by the wide diversity of national regulations applying to each territory. In the context of global media competition. Following the Coase theorem. (See Mark Blaug “Why did Schumpeter neglect about Intellectual Property” Review of Economic Research on Copyright Issues. the obligations imposed on television operators to purchase programmes from domestic independent producers have introduced specific rules in production financing and in the remuneration of IP rights. a derogatory licence may be set up. However this development has speeded up during the past fifty years. Cambridge : Belknap. do not enjoy copyright protection per se. trademarks and copyright. These rules (which are supplemented by various subsidy mechanisms) shape the competition among audiovisual media. All these approaches now converge towards what economists call intellectual property (IP) which covers a broad range of instruments aiming at coordinating the production and the exploitation of information.out of different media in each country. Creativity and not media economics is the basis of the copyright regime. vol. In other words. such as sports events. IP is an economic category that dates from the 1980s and embraces the legal institutions of patents. they deliver unpredictable and very heterogeneous utilities generating a high failure rate. See Landes and Posner Economic Structure of Intellectual Property Law . The disparities in copyright rules or in the vertical relations between rights holders and distributors. resulting from the deregulation of the television sector. Media economics are therefore based on a monopolistic competition between intellectual property (IP) rights holders. This historical dimension to copyright and ‘droit d’auteur’ regulations has led to particular economic approaches in looking at the rationale behind these institutions42. page 14. The same kind of protection (although on a different scale) was then provided to performers and to those investing in creation: producers of phonograms and films as well as broadcasting organisations. Experience and diversity Media deliver ‘meaning’. 43 The basic economic rule is that the copyright holder gets an exclusive right to licence his/her product to various industrial agents who will repay him/her according to a specific contractual agreement. 69-74). but only when associated to their transmission through broadcast do they adopt that value. National and international regulations are. the copyright regime offered monopoly rights to authors (writers). While the number and the regulations of private television channels differ in each country. copyright laws have been created as a means of controlling the right to copy original works for the purpose of public dispersal. and as a tool to enable transactions between the rights holder and agents operating in other parts of the value chain. Copyright regulations differ from one country to another. which addresses the widest possible range of individual preferences. in turn. The organisation of this competition is specific to the national regulation of each EU Member State44. The development of the media over several hundred years has continuously increased the range of copyrighted material and services. exclusive rights prove to be more efficient than levies or compulsory licence mechanisms. This explains why some categories of valuable media goods. 2003. pp. the old European monarchies — countries in which political institutions pre-existed the outbreak of mass media — had to adjust their media regulation to their existing political institutions. At its outset. Furthermore. and are deeply rooted into every national institutional framework. they are experience goods whose value is known only after they have been consumed. composers and publishers of artistic and literary works. even though some marked differences exist between the Anglo-Saxon copyright tradition and the continental ‘droit d’auteur’ regime. illustrate this phenomenon. 2005. 42 While the ‘droit d’auteur’ always carried the scope of an individual right comparable to the Anglo-Saxon right to free speech. In particular. 2(1). 44 The European media landscape is characterised by a set of national regulations resulting from five centuries of public information internalisation policies. very important in shaping media’s industrial organisation and local media markets41.

It consists of offering different qualities of the product at different prices. The internalisation mechanisms therefore cannot be the same in the two industries. however. and the level of liberalities46 (of use) granted to the consumer47. if proper incentives exist.B. The high quality or the first-released versions will be picked by consumers with a high willingness to pay. media pricing mechanisms are highly discriminatory (this also applies to trademarks whose investment in ‘meaning’ has to be recovered through price discrimination. Content owners can therefore take advantage of these various demand segments and maximise overall profit. This consists of inserting commercial information (advertisements) within a media product in order to make the advertiser subsidise the content. This means that the same product can be sold to different consumers at different prices under different access and quality conditions. FTA). However. the works will remain unknown and unconsumed. but also the means of access. It covers not only the quality differentiation. See Paul Belleflamme. While communication systems are commonly priced on a cost basis with non discriminatory rules. This pricing mechanism attracts consumers by offering free content. number of people one can share the file with. number of copies on different devices. 2000. advertisement can often undermine the quality of content. while the cheaper versions will be chosen by consumers expecting a lower marginal utility. number of access. 2006. for example. encouraging consumers themselves to select from among these versions according to their differing degrees of willingness to pay. While it should be possible for everyone to be able to communicate through digital networks. In other words. Introduction to Industrial Organization. media content is usually driven by better price discrimination45. largely financed by licence fees and public subsidies. In this case pricing for each individual product is set with the aim of maximising the revenue associated with the product and. Fully ad-subsidised and public-based versions are free for the consumer (known as free-to-air. which is then paid for by the advertiser in proportion to the audiences reached.Signalling of the experience to be expected from a particular media product – in other words. Versioning is a core concept of media marketing. the producer of a digital music file has the possibility to create different versions by attaching different liberalities of use to the file (in terms of. to serve the widest range of preferences. See Luis M. Monopolistic competition enables content owners to apply price differentiation. Conversely to many functional goods. which for international films can surpass production expenses. Such pricing mechanisms — quite common in airline or train transportation services — are based on the principle that the good or service cannot be resold by a consumer. It depends on the utility patterns of each type of content. Content which is 45 Because each product addresses unknown preferences. « Versioning information goods ». The discrimination strategy is called quality pricing. but media content (whose marginal reproduction costs are nil) are priced on the marginal value they bring. luxury goods carrying heavy trademark investment show the same economic patterns as media content and should be considered as the combination of a material good and a media). media markets rely on sophisticated pricing mechanisms aimed at extracting the maximum willingness-to-pay from the consumer. communication systems are usually priced at cost. rights to modify or excerpt. its advertising and marketing – requires significant investment. Price discrimination: versioning and bundling Price discrimination of content is achieved through versioning and bundling. or even time of possession). “ using DRM. provides quality programmes but not ‘premium’ content which is more profitably distributed through pay-TV. FTA versions removes the consumer’s risk of buying a product which 26 . Public television. to reinvest that revenue in new creation and signalling. the bundle of products gathered in the offer. media goods should at the same time be maximally valued so that re-investment in new product can be made. page 166-187. MIT. A paradox of the digital economy is that communication systems and media content share neither the same economic patterns nor the same externality profiles. MIT. 46 The expression “liberalities of use” designates the scope of the usages granted to the consumer by a given version of the media. Advertising and marketing investments are usually calibrated and target specific cultural audiences to reflect local sensitivities and peculiarities. Without this investment. Cabral. Chapter 10. or versioning.” 47 Two-sided markets are a common versioning practice.

free-TV — with the goal of maximising the global exploitation revenue of each product. 49 See Nalebuff B. VOD rights are often bundled together with television rights rather than being exploited separately by pure VOD players. pay-TV. can wield real power by effectively deciding which utilities enabled by new technologies will be rolled out. In addition to versioning. The insertion of each new technical version in the exploitation schedule has been decided according to the benefits it would bring to the consolidated revenue of the content. DVD. discrimination relies on time. The buyer of a newspaper will make his own selection of the columns or articles he might find interesting. 2.1. Nov. Content is then distributed through a wide would not match his expected utility. or in purchasing by the unit49. For example. as well as risks. For example. pay-models for online news. 48 A consequence is that music is purchased in a limited number of versions (CDs.usually only consumed once — a book. thereby gaining a competitive advantage on pure VOD players. FTA versions need to be strongly differentiated from high quality or premium versions. 27 . In fact. Yale Working paper nb. By bundling together products addressing multiple preferences with no additional distribution costs.1999.99-14. Thanks to their IP rights granting them an exploitation monopoly. which often lead to repeat consumption48. However. combine versioning and bundling techniques. Nevertheless. a soccer match — will not be versioned in the same way as music or video games. because they appeal to consumers with the lowest willingness-topay. pay-per-view. A CD is a music bundle. Bundled sales of premium content such as subscriptions to newspapers. a content provider can maximise the value of each individual piece of content. unlimited packages in movie theatres or pay-TV packages. see the fact that Apple has introduced temporary exclusivity in relation to major new releases. e. the film industry has continuously expanded the exploitation of its products on multiple distribution channels — theatrical. The distributor addressing the largest subscriber base will aim to invest in the widest range of content to be resold in packages. content owners (especially those controlling large catalogues). Bundling as an Entry Barrier. Finally.2 Audiovisual versioning The versioning of content depends on its utility patterns. digital technologies allow the continuous surge of new media and new versions. quality of product and pricing. one can find some versioning over time in music too. a well-established pay-TV operator will have interest in purchasing VOD rights to be added to its bundle. This stimulates competition between content distribution channels. In the case of audiovisual content. MP3. The ability to exercise such control is important in order to share financing responsibilities. in relation to audiovisual production. with each one trying to increase the utilities associated with its versions. digitally-encrypted streams) to be stored in libraries and then played-back many times on demand. If television rights are bought to be exploited on a territorial basis. the most efficient way to accommodate consumers’ preferences is bundled sales. In other words if distributors can equally sell linear and nonlinear versions. a film.g. VOD (various pricing models). this logic may extend to VOD rights. the VOD rights will tend to be purchased at a higher price by those already bringing value to linear versions: they will then optimise the combined value of the linear and non-linear version. a newspaper is a bundle of news articles.1. These models are subject to economies of scale and economies of scope which may deter competition: subscribers to a wide-content bundle will have little interest in subscribing to a narrower bundle.

The FTA model has provided the consumer with an incentive to invest in a television set. With the advent of television. as well as the new technical content versions. have been established. broadcasters have been able to offer new ways to consume audiovisual products with restricted access52. being sold at a higher price. In this way the system of intellectual property rights enables the creation of different content markets and content distribution systems. allowing the consumer to get it within different time windows. In all European countries. in the domestic media landscape. Thanks to the equipment available in the consumer’s home. television was initiated as a public service financed through a special tax. diffusion quotas. these products were upgraded to DVDs allowing the creation of an additional video version market. The FTA models did not require any access control. such as pay-TV services or video recorders. The relative position of the window release granted to pay-TV determines its differentiation with the other media and then its ability to discriminate subscribers. the range of products commercial FTA broadcasters might access should be narrower than that of pay-TV operators. Video On Demand in Europe. The roll-out of VHS and the development of conditional access technology allowed the marketing of new versions based on payservices. more channels and colour services were progressively offered. Countries wanting to protect their domestic media sector have established specific rules regarding ownership concentration. The video recorder installed base was the basis for the expansion of a packaged content market using the VHS standard. In the late 1970s. first broadcasts — and thematic bundles (including adult material) gathering specific programmes are better valued by the consumer than the FTA channels. under different formats and at different prices. According to the NPA VOD study (NPA Conseil. complementary facilities. a new route to market had appeared50. 28 . This utility is attached to the technical parameters associated with the delivery mechanism. resulting in local regulations in each EU country to encourage the establishment of new television operators. however. Audiovisual content is marketed across distinct territories through different versions addressing specific market segments with adapted pricing models. Since the first generation of television sets. However. 51 These rules have led to a territorial monitoring of media competition through a versioning regulation including the ad density in FTA programmes and the release windows for motion pictures. Each country then acted according to its own traditions in evaluating media externalities and setting up internal regulatory tools. Pay versions are usually released in windows preceding free to air (FTA) broadcasts and are therefore more valued by consumers than ad-subsidised models. except for territorial reasons. This means that pay-TV operators have a competitive advantage in becoming VOD distributors. but started degrading the comfort of watching broadcasts with more and more advertising. 52 Premium content — exclusives. a study sponsored by the EAO and the French Direction du Développement des Médias. Depending on its 50 The development of television established a market for new formats as well as a new version market for films. The latter strongly varies with linguistic and cultural patterns within and across countries. The content owners’ goal is to maximise the value corresponding to the utility of their products for each type of consumer. May 2007). Technical versioning The audiovisual industry and markets started in the early 20th century with the roll-out of cinema theatres where large audiences could access motion pictures and news documentaries. Television then became a commercial service based on a two-sided market platform able to resell audiences to advertisers. the modalities and the schedule of the theatrical release windows are quite different among the – then – 25 EU Member States. incentives for local production and vertical relationships51. FTA broadcasters can also efficiently purchase VOD rights for the products they consider to be of value. however. being less exclusive and mass-market orientated.spectrum of versions. these versions had to be inserted in time windows preceding FTA. Until the 1950s these theatres were the only market for audiovisual products. By the end of the 1990s. as well as to the ’meaning‘ of the content for the consumer.

The economics of pay-TV rely on its differentiation with all other media.audiovisual industrial organisation. 53 Pay-content versions then have to be designed so as to bring maximum differentiation from free-to-air versions. While FTA relies on spontaneous audiences corresponding to separate programmes. rental. As we have mentioned before. This means that if pay-TV operators reach a critical mass of audience. but by the economic value to be extracted from content. The more technical means of access exist. As a consequence. they should be in a position to extract better value from their programmes and will increase their competitive advantage in purchasing them. The high concentration in each national pay-TV market illustrates this fundamental advantage. This economic rationale underlies the competitive environment for VOD. catchup. These models each have various means of access and terminal equipment. Not only does the competition between FTA and pay-TV versions rely on quality. bundled with television packages. such as television operators. The fragmentation of the FTA audiences due to the surge of new digitally-broadcasted channels amplifies this phenomenon. have been so eager to develop catch-up and other VOD offers. 29 . etc. In economic theory. but primarily with FTA. bundling is a better discrimination tool than separate retail. rights holders can select from a number of distribution options in order to identify those that provide the best discrimination — the best consolidated returns — for their products. subscription. the pay-TV operators sell bundles. the development of VOD markets is not driven by technology. the more combinations of offers can be created to improve discrimination efficiency in distribution. each country has had to find a way — regulated or not — to facilitate this process. In other words. digital technologies allow the development of on-demand versions which can be priced according to different models: FTA. download to burn. As regards non-linear systems. it explains why large audiovisual rights purchasers. but additionally on the pricing mechanism of each version market53.

Cultural Versioning Media goods provide a meaningful experience which can be socially shared. As a result they generate cultural paths which affect their relative value within the different cultural communities. The utility of new content also depends on those which have previously shaped the tastes of the targeted audiences. Therefore, versioning is highly sensitive to linguistic and cultural parameters. The example of Luciano Visconti’s La Caduta degli Dei shows how subtle the differences are for marketing content in different territories54. It shows that a film that is subtitled or dubbed and promoted by a local marketing campaign to appeal to a specific linguistic or cultural audience can be given a new dimension. Every geographic content version therefore carries an added value as a result of adaptation and marketing. In economic terms, each version is individual and valuable and cannot be simply substituted55. In particular cases audiovisual content can successfully be broadcast in one form all over Europe, if suitably packaged. But even in these cases it is difficult to assert the existence of a pan-European internal market, since licences are rarely granted on a pan-European basis. In effect, the investment associated with the linguistic versioning, and more generally with the marketing, of each content is specific for each territory. Consequently each licensing contract requires negotiation on the size of the investment and how the risks will be shared between distributor and rights holder. There are few economies of scale in negotiating such contracts for multiple territories. Moreover, the distributor’s risk is better hedged by distributing several contents in the same territory than by distributing the same one in different territories. The same issues can be seen in the sale of rights to the UEFA Champions League. These are sold by UEFA through multiple individual licences to national broadcasters, largely because viewers want to watch football matches commentated in their own language. Some Hollywood, and even a few European, blockbusters may appear as an exception that proves the rule: designed for global audiences, the theatrical versions are increasingly often released on a ’day and date‘ basis, across multiple countries and languages (subtitled/dubbed), so as to minimise the impact of piracy. However, the marketing investments continue to vary from one country to the other and shape different distribution contracts. This is also the case for the later marketed versions such as home video and television broadcasts. This is further substantiated in chapter 3. Versioning helps to package and release content in order to discriminate between different consumers according to their utility. While the premium high-quality versions will target consumers showing the highest willingness-to-pay, the subsequent releases will progressively reach consumers with a lower willingness-to-pay.

54 The movie has been distributed in the UK and in Germany under titles equally referring to the Wagner Opera Götterdämmerrung. The French title Les Damnés did not carry such a reference. However, another Visconti movie happened then to be issued in France under the title Le Crépuscule des Dieux, referring also to the Wagner Opera. Because of the confusion with the former movie in neighbouring countries, it had then to be renamed and re-advertised as Ludwig ou Le Crépuscule des Dieux. 55 The assertion is exemplified by the strategies adopted by MTV or YouTube, which underline how critical idiosyncrasy is in audiovisual content distribution. See the box in Appendix. 30

Focus: Audiovisual sports rights licensing practices56 Sport is a premium audiovisual content in both economic and cultural terms, and is often affected by audiovisual regulation and policy. It differs from other audiovisual content in a number of ways, including the fact that the value of sport events lies almost exclusively in the commercialisation of live audiovisual rights (unlike other content such as films or music). Sports media rights are traditionally sold on a country-by-country basis. It is generally easy to acquire the rights and if there was cross-border demand, sports rights holders say they would respond to it. Sports rights holders are increasingly developing the opportunities offered by new media distribution channels. Some of them already provide cross-border licensing solutions when it fits the organisation of the market. For instance, the rights of the International Cricket Council (ICC) World Twenty 2009 were sold to Eurosport for Europe (except the UK and the Netherlands where the rights were acquired by local broadcasters). More and more sports rights holders – such as World Marathons, the International Tennis Federation and the Rugby Football League – offer online access to their events (especially in territories where there is no terrestrial broadcasting for a given event). Sports rights holders take the view that the development of any international licensing scheme – especially if any kind of obligation to offer such licences would exist – should be examined with caution, as it might have adverse economic and cultural consequences for the sport sector. It could create market concentration that might endanger cultural diversity and favour the domination of major sport competitions. In addition to this, sports rights holders expect a decrease in revenues if international licensing was to become the status quo, as rights could not be efficiently sold. This would impact on the health of sport, as well as its cultural and social dimension, since a share of media revenues is directly redistributed to grassroots sport. These issues are discussed further in the Appendix in a case study on the audiovisual rights licensing of sport content. It describes licensing practices in this sector and the issues at stake regarding international licensing.

National or territorial versioning has a major impact on the industrial organisation and the trans-national circulation of media content in the EU. In fact, unlike the oil, steel, automobile or beverages industries, there is currently no trans-national media company in Europe that proposes to release and market content across Europe in the same way57. As observed in the MTV example58, distributing media content across Europe requires customisation investments to adjust to every local market. Consequently, there are few economies of scale to be expected from a concentration of European media. Such economies would exist if there were no fixed costs and no financial risks attached to marketing to a wider territory. However, because of the linguistic segmentation of Europe’s market, this is not the case. This implies that European content industries carry high discrimination costs: the investments
56 This focus is based on an interview that was conducted with representatives of SROC’s (Sports Rights Owners Coalition), members as well as written contributions from SROC members. 57 Bertelsmann’s RTL Group is Europe’s leading entertainment company and runs television and radio channels in 11 EU Member States. According to our interviews, it sees little value in releasing its audiovisual content on an international basis. 58 See case study in Appendix. 31

required to shape consumers’ utility (or appetite) for a product or service are comparably higher and riskier than in larger linguistic markets. Compared to monolingual markets such as the United States, and to some extent India or China59, Europe therefore suffers a competitive handicap at the marketing and distribution level: the multiplicity of languages and cultures creates a wide distribution of individual preferences that requires expensive versioning and creates high discrimination costs (see also section 3.1). Each linguistic version adds some costs and addresses smaller markets. The work’s cultural specificity (humour, local stories, historical figures or facts) contributes further to fragmentation. Moreover, as discussed below, the national regulations resulting from long-established local or national policies in the media sector amplify this segmentation. To some extent, these factors challenge EU policy’s single market objectives. However, cross-border trade is more common when linguistic/cultural areas do not correspond to national boundaries. For instance, many German channels are broadcasted to Austria, the Netherlands and Belgium (another example of this would be Scandinavia). The same can be said for British television channels which are received in Ireland. Hosting three different linguistic communities, Belgium has established different channels addressing their segmented communities and has largely opened its boundaries to foreign channels. Belgium is therefore the only country in the EU with no public nationwide broadcaster. These particular cases do not question the national organisation of audiovisual content distribution, since private contracts enable them to manage cross-border markets60. Finally, audiovisual content is amongst the most capital-intensive media both for producing and marketing. This means that large linguistic markets, such as the United States, have a huge competitive advantage in producing and exploiting them. The pre-financing of audiovisual media requires a strong involvement from the territory they are designed for, especially when the linguistic market is restricted. As a consequence, rights holders will always give priority to exploitation in their own financing territory, and will subordinate foreign distribution to the needs of these investors. As distribution in foreign territories requires specific investment (advertising, labelling, subtitling, dubbing, etc.) to make the product attractive to the local viewer, the selection of a distributor for each territory will rely on the efforts this distributor is ready to make to sell the product, as well as its willingness to pay the highest acquisition fees. In conclusion, there is one important economic reason to licence media content on a territorial basis: each linguistic market requires and deserves a specific marketing investment. As a consequence, there are few economies of scale in marketing a product across several territories. Moreover, by marketing a content version to two different linguistic territories, distributors increase both their investment and their risks. On the contrary, by distributing the same content as different content versions to the same territory, distributors keep the same investment and reduce their risks. This fact undermines the rationales for international licensing and provides a strong competitive advantage to broadcasters distributing VOD content.

59 Although these subcontinents host many local dialects, they share at least a unified common language allowing domestic productions as well as movie stars to be acknowledged and celebrated continent-wide. 60 As shown in the Conditional Access evaluation study (KEA, Cerna, December 2007), pay-TV ‘grey markets’ are associated with these versioning patterns. Grey markets occur when the cultural preferences of some viewers strongly differ from the dominant preferences of a territory. The opportunity is then informally offered to those viewers to buy access services from a neighbouring country, rather than content providers having to invest in a specific versioning for the whole territory. 32

2.1.2 Structure of the sector
The European audiovisual market is not unified yet. The market continues to remain organised at national level – with some exceptions such as the theatrical market in Scandinavian countries. This Chapter shows that national markets are also very different one from another from an economic point of view. Typologies are proposed later in this report to classify these national markets. The typologies are important as they inform the projections for the development of VOD in the next five to ten years (see Section 3.2).

2.1.2.1 Audiovisual content markets in the EU and the US A brief comparison between the EU and US audiovisual markets is useful as the latter operates as a single market. This analysis illustrates the differences between the markets in terms of their historical development, their structure and their size. Taken as a whole, the European Union has a comparable total GDP to the US. However the performance of audiovisual markets is much stronger in the US than the EU61. While the FTA markets are less developed in the US than in the EU, the US pay-TV market is at least three times larger than the EU’s. The reasons for this are deeply rooted in America’s history. Since the 1830s, American media was developed on a commercial basis, funded through advertisements and consumers’ payment. For television, the early roll-out of the cable infrastructure has been impacted by tough competition among commercial FTA channels. The importance of advertisement on FTA gave an earlier and wider opportunity to pay-TV services. Conversely, European countries have developed television as a public service. It can be argued that the social and political impact of television has naturally reflected the European tradition of public service. Television in this case is primarily seen as a universal service, progressively diversified and upgraded by new channels. As a consequence, FTA television has been the first to be regulated in order to ensure quality programming with little advertising. The willingness-to-pay for pay-TV channels is in general lower in the EU as a whole62. Another important difference concerns the main market players’ nature and size in both territories. In 2007 the 20 most important audiovisual companies worldwide included 11 US companies and only 5 EU companies63. The largest EU company was Vivendi Universal from France with a turnover of $ 15,007 million64, compared to Disney with $ 24,884 million. The US audiovisual market is highly vertically integrated and concentrated. In 2004, six companies65 represented a market share of 96% of US film distribution and between 75% and 98% of US ad revenues66. In the EU, most players, even the major ones, are not significantly present all along the value chain and/or in all EU markets. For example, there is no European vertically integrated film
61 See the graph in the Appendix. 62 There can be huge differences between EU countries, as illustrated in the Appendix. 63 The remaining companies are Japanese (source: EAO). Moreover, segments other than audiovisual are not included. 64 It has to be noted that Vivendi Universal has sold its remaining 20% stake in NBC Universal, which may reduce its turnover and furthermore its importance when compared to US conglomerates. 65 Viacom, Fox, NBC Universal, Time Warner, Sony, Disney. 66 Epstein, Edward Jay, The Big Picture, 2005. 33

Thus.g. from DVD retails and rentals. 71 See Appendix for detailed data. All this paints a very different picture than in the US. 34 .g. It remains to be seen whether these distinctions will still hold as far as VOD is concerned. 68 See http://ec. 70 See Appendix for complementary graphs illustrating this correlation.2.html. which will be used to assess the evolution of VOD markets in the next five to ten years (see Section 3. in terms of unifying the markets. data on revenues from theatres. 69 Unfortunately a few countries are missing as data was not available. The wealthier the country. All this makes it difficult to identify the major players in audiovisual markets at EU level. Audiovisual version markets across the EU To assess the total size of every national audiovisual market. it is easy to observe a correlation between the size of the economic system as a whole and the size of the audiovisual market as a whole. notably between the diverse outlets71 67 See Appendix for the list of languages and their date of entry in the EU. and − to provide typologies of the audiovisual markets. is language. the EU market is not. and from television broadcasting companies were combined and analysed69. The conclusions from this analysis were that: − there are significant differences among EU countries (notably in terms of total size) − observed differences can be explained to a large extent by the economic size of the country as a whole (with of course some exceptions.company capable of controlling distribution throughout main territories. 2. but only operate in three to four territories. Firms like Pathé and Wild Bunch are the closest to this model.eu/education/languages/archive/languages/langmin/euromosaic/index_en. While US audiovisual players are competing all across the US (e. the diversity of the economic features of national audiovisual industries clearly relies on cultural differences. e. The aims of the description are: − to complete the economic description of the audiovisual market with quantitative data. the UK audiovisual market which is particularly developed). Finally. The US market is unified.1. The difference that causes the most problems.2). It therefore appears that the US and the EU audiovisual markets are in fact very different one from another.europa. the more important the audiovisual market70 − not only do markets differ in terms of the amount spent by consumers but also in the way this amount is spent. There are 23 official languages in the EU67. the ‘Big Four’ television networks) there are no EU audiovisual firms active across the whole of the EU. where one can find numerous minority languages (including those spoken by Native Americans as well as migrant languages) but only one official language: (American) English. which does not include all ‘minority languages’68 and languages spoken by immigrants from outside the EU.2 Audiovisual content markets and consumers’ spending in the EU The EU audiovisual market is briefly described below. and of every outlet.

More generally there is a correlation between spending per consumer and income per capita: the wealthier the average consumer.− the only common point between EU countries may be the fact that television accounts for the predominant part of gross revenues in every EU country Audiovisual market sector (M€) 24 474 17 417 14 321 7 893 5 233 542 623 823 915 1 097 1 321 1 588 1 672 2 037 2 334 9 590 Source: EAO. with − Spending per capita is predominantly directed towards television. so that: − differences are smaller than for revenues. theatres account for a more significant share in France. 74 See Appendix for detailed data. Data is for 2007. Spain and Denmark74 72 The ratio would probably have been higher if data on some small countries like Luxembourg or the Baltic countries had been available. 35 . 73 See Appendix for complementary graphs illustrating this correlation. or the lower level of Ireland. In the biggest market (the UK) spending is 40 times higher than in the smallest (Czech Republic)72. the higher the spending on audiovisual content73 − the highest level of consumer spending corresponds to the highest level of GDP per capita. some exceptions such as the very high level of the UK. although the this is a slightly less so for Ireland. Consumers spending across the EU Analysis of the amount spent by every consumer for audiovisual products provides a slightly different picture. with the difference only 10 times of consumer spending between the highest (still the UK) and the lowest (Poland).

− Finally countries that belong to Group 3 mainly distinguish themselves by having a higher share of movies coming from other EU countries. However. 36 .− Consumer spending in audiovisual content (€) 402 307 177 192 208 212 212 226 256 320 159 42 54 61 78 162 Source: EAO. 76 See the detailed list of variables in the Appendix. 75 See a description of the methodology in the Appendix. The statistical approach identifies three groups of countries: − Group 1 includes the largest EU countries by population. two typologies of national audiovisual markets are proposed. since the countries differ substantially in the way they are importing films for consumption in theatres. e. Data are for 2007 (in €). This does not necessarily mean that consumption of audiovisual content on VOD should follow the same path as in theatres. and the origin of movies available in theatres76. distinguishing the structure and the performance of these markets. The typologies were created using clustering methods75. This issue is further discussed in Chapter 3. On average there are more screens per capita and more television channels in these countries. there may be an impact from the current theatrical circulation of films on the circulation of VOD content.g. and the most significant difference with other countries is the higher share of domestic movies available on screens. This first typology helps to explain why VOD may have different impacts on the circulation of audiovisual contents in the EU. the number of screens and of television channels. The structure of the audiovisual markets includes the supply-side. Towards a typology of the EU audiovisual markets To conclude this Section. − Countries that belong to Group 2 mainly distinguish themselves by having a higher share of non- European movies among the total number of movies available.

Table: A typology of EU audiovisual markets according to their performance79 In conclusion. we were not able to use the clustering method for all the EU countries. more television channels available in the country. This was explained and described using data provided by the EAO. the EU audiovisual sector is mainly characterised by its fragmentation. The markets are organised mainly on cultural grounds.Table: A typology of EU audiovisual markets according to their structure Group France Countries Germany Spain Ireland United Kingdom Characteristics In average more screens per capita. 79 Due to a lack of data. 78 This is confirmed by an analysis of the correlation between demand conditions (including GDP per capita) and audiovisual performance. Some were therefore added to one of the groups by looking at existing incomplete data on revenues. While the main audiovisual market players are present in several EU countries they do not reach the same level of integration in all these markets. see Appendix for the corresponding Spearman matrix. These added countries are italicised. based on the revenues per capita for every segment of the audiovisual markets (theatres. DVD and television). which is at the same time cultural and industrial. and countries in Group 2 the most deprived78. as well as the market shares of the different origins for films in theatres77. Countries in Group 1 are the wealthiest EU countries per capita. The statistical approach distinguishes between two groups of countries. 37 . namely that Group 1 Austria Finland Ireland Spain Bulgaria Estonia Lithuania Romania Countries Belgium France Italy Sweden Cyprus Hungary Poland Slovakia Denmark Germany Netherlands United Kingdom Czech Republic Latvia Portugal Slovenia Characteristics Significantly higher revenue per capita of theatres & DVD & television companies 2 Significantly lower revenue per capita of theatres & DVD & television companies 77 See the detailed list of variables in the Appendix. This fragmentation also explains why audiovisual content is licensed on a territorial basis. significantly higher share of domestic movies in all movies available 1 Italy Bulgaria Cyprus Greece Malta Slovenia Belgium Hungary Poland Estonia Latvia Portugal Sweden Czech Republic Luxembourg Slovakia Significantly higher share of movies from other European countries in all movies available Significantly higher share of non-European movies in all movies available 2 Finland Lithuania Romania Austria 3 Denmark Netherlands The performance of the audiovisual markets includes the revenues per capita derived from the main segments of the audiovisual markets.

every linguistic market deserves a specific marketing investment. 38 . the practice of holding the rights on several versions for one territory appears to be less risky than the practice of holding the rights on one version for several territories. The issue of whether this is also the case for digital distribution is further discussed in the following Sections of this report. As a result.

Secondly. circulation and consumption of audiovisual content. making it possible to distribute several digital content versions to different end-devices (internet-enabled television. 39 . some of them may have to rethink their marketing strategies and their strategic alliances to best benefit from this transformation. there may be an opportunity for rights holders to sell international licences to make rights acquisition easier for commercial users. Firstly. if consumer demand for non-national European works grows. computer. as digital technology and social networking provide the European industry and European talent with opportunities to develop new international audiences. exploitation. Such practice has not occurred in cable and satellite broadcasting (where it is also technically feasible).2 examines the impact of VOD on audiovisual content distribution (in particular how VOD can affect European rights holders’ ambitions to expand their market share in foreign territories) and briefly assesses the resulting implications for policy making.2. nevertheless the potential for international licensing of VOD is examined at the end of the Chapter. audiovisual content can be disseminated electronically via different digital transmission networks. Specifically this Section will: − examine how VOD and digital communications influence consumer behaviour − illustrate how this changes the competitive dynamics of the audiovisual ecosystem in general − review changing industry practice regarding rights licensing. European rights holders. Finally. − At the distribution level. the ability to distribute content across borders at lower cost may lead to the establishment of internationally-operating VOD providers that could challenge the system of territorial content distribution which prevails in Europe. Distribution has become more efficient and less costly. production finance and marketing to outline the implications that digital distribution has for rights holders − analyse the prospects of increased international licensing These trends relate to this assignment and the potential development of an internal market for audiovisual content in several ways.) and to distribute content digitally across borders at lower costs. Section 2.1 Context – the digital shift and the emergence of VOD Digital technology has an impact on production. electronic form.1 will briefly describe some of the main developments in this technology before investigating how the emergence of VOD enables rights holders to exploit their content in additional version markets. digital technology affects the audiovisual industry on several levels: − Audiovisual content is increasingly created with the use of digital equipment and therefore exists in immaterial. etc. In summary.2. 2. The main effect of this on markets is the increase of individuated consumption. Storage costs are generally declining. may have to devise licensing strategies to use these platforms on favourable terms.2 The impact of digital technology on content distribution in the EU Section 2. It can be transferred to digital hard drives for post-production and editing and saved on several physical storage devices.2. used to exploiting rights territorially. handheld. and to potentially reach larger markets with one content version.

− Marketing and communication is increasingly done online and it is becoming more interactive across industries through the use of digital media. where and how some consumers wish to watch content. A more thorough analysis of VOD markets will be provided in Chapter III. − The proliferation of diverse broadband services and a growing variety of electronic end devices is appealing to many consumers. Copyright enforcement influences competition between different distribution systems. 2.2 Impact on consumer behaviour How does digital technology impact on consumer behaviour and what might this imply for the evolution of VOD? Section 2. micro-blogging and virtual communities – in general the uptake of social media and digital communications – can provide detailed information about final users. in the audiovisual industry ‘offline’ marketing budgets remain a dominating cost factor (see Chapter III). users increasingly expect access to content wherever they are and whenever they want.2. content-protection devices such as set-top boxes represent a costly component of dematerialised content distribution.2. Digital Terrestrial Television. At the same time. Cable.2. the global nature of the internet and the ability of users to easily copy and share content pose challenges to copyright enforcement. but can also be based on payment per viewing. access to content and its portability become increasingly important. Social networking. It can allow permanent use (in the case of Electronic Sell Through/download-to-own). and specifically undermine the rewards for creative talent and rights holders.2.2 illustrates when. and creates new markets for the audiovisual industry. VOD can also be categorised according to the terms of use. The success of VOD services depends to a great extent on the dominance of certain networks (such as IPTV in France) as well as on users’ purchasing power in each country and on their acquaintance with pay-TV models among others. However. Providers of digital distribution services try to satisfy an increased demand for services by allowing consumers to make use of multiple electronic devices in multiple locations.1 When and where consumers want to access content In digital environments. It also argues that through the possible increase of social networking across borders. ADSL (IPTV). This may limit rights holders’ willingness to grant licences to certain players or territories. and even impact on how products and services are being developed. where the value of different VOD markets across Europe will be analysed. 2. 40 . Digital technology has fuelled the development of different VOD models that can be roughly categorised according to their terms of distribution: Open internet. Satellite or mobile networks. − Finally. and examines how they benefit from increased interactivity and choice. the audiovisual sector may be able to address some cross-border audiences for specific titles. subscription fees (SVOD) or advertising-based models (known as AVOD or FreeVOD).− However.

Similar services. 80 Wood.and place-shifting devices are not new – essentially the VHS recorder already allowed time shifting long before digital arrived. HP (MediaSmart) and Apple (AppleTV) have developed similar value propositions and DVRs are often offered for free with cable. Some of the interviewed European cable companies would be interested in developing similar value propositions. similar to VHS but in better quality. Around 2000. as illustrated below: Focus: time and place shifting Time.. Morgan Stanley recently published a report from a 15-year old summer intern on young people’s consumption habits80. Slingbox connects to a television and home network. 2. however. Wellington. allowing users to record broadcasts. Morgan Stanley Research. are currently being developed by several (mostly US) cable providers. and to watch it on a television set. Edward H. 10 July 2009. Disney. 41 . digital place-shifting services made their first appearance. How Teenagers Consume Media. companies such as Roku. how they watch it. new value propositions have been developed to attract consumers.2 How consumers access digital content and engage with new services Digital technology has opened new opportunities for searching and selecting audiovisual content. Slingbox is one of the most well-known products that allow place-shifting. However.2. It provides media service providers with the opportunity to engage with specific audiences in new ways. Place-shifting allows users to enjoy content regardless of where they are and thus offer a new value proposition. As originally announced by Time Warner at the end of 2009. Today. TiVo also introduced the possibility of downloading content from Amazon VOD.To illustrate this. Particularly on the open internet this results in specific communities of interests. With digital technology. wherever they are. allowing users to watch and control their television on any Internet-connected computer.2. This report describes clearly how young consumers have already become used to the idea that they can decide what kind of content they watch. Technological solutions that answer to the increasingly-flexible consumption patterns of consumers have been developed. all centred on the concept of ‘pay once. the first Digital Video Recorders (DVRs) such as TiVo entered the market. watch anywhere’. although they said many technological and economical hurdles exist in Europe. on their iPhone. which present an opportunity for EU media service providers to target specific audiences across borders. The majority of consumers using such services primarily access content originated in their own countries. IPTV or satellite subscriptions. Patrick and Rossi Julien. Around 2005. Jaman and YouTube among others. TV Everywhere allows its subscribers to login and access its content via the internet as well. Netflix. in the event that rights holders intensify their efforts to access foreign European markets there is a potential that greater cross-border demand for international European content would emerge on the basis of these services (see below). Blackberry or mobile phone. when they watch it and where they watch it.

Rights holders will increasingly need to take recommendation models into account and make sure that their works are well promoted on internet-based VOD portals or on the search panels that ‘closed’ VOD services offer to consumers to search and select content. as it may be easier to search specific genres across borders. North Korea. recommendation and selection tools. October 2009. users will be able to conduct place-sensitive as well as global search enquiries in ever-growing databases of audiovisual works. Myanmar. 82 The competition was held by Netflix. www. etc. Iran. or if different national content repositories become interconnected with the help of the internet. and was open to anyone not connected with Netflix (current and former employees. 42 . which offer personalisation features that are based on a complex algorithmic analysis of consumers’ consumption patterns. together with personalised recommendation technologies and more sophisticated international metadata standards. On 21 September 2009. In this context. an online DVD-rental service. Brussels. European Commission. 84 Hill. If content repositories offer more digitised non-national content.7 million between its launch in January 2009 and October 200983.000 was given to the BellKor's Pragmatic Chaos team which bested Netflix's own algorithm for predicting ratings by 10% (http://www. already YouTube constitutes the second-largest search engine on the internet84. The number of visitors to the UK-based and UK Film Council-backed FindAnyFilm has grown to 3. the grand prize of US$1. The need to capture audience interest and work with the consumer’s willingness to pay is potentially the most important (and difficult) challenge that VOD service providers face. 81 See http://myapplegenius. Over time. already realised this and introduced the Netflix Prize worth $1. may make it easier to search for appealing content.000. a US-based DVD-rental service.) or a resident of Cuba. Joshua. 16 Oct 2008.Trends concerning search and selection Search and selection of audiovisual content – whatever the content version may be – is increasingly influenced by the internet. Netflix. thanks to the search and alert functions offered through the website. 83 Presentation by Peter Buckingham (UK Film Council) on FindAnyFilm. taps into this development.com/ (accessed January 2010). The website aims to promote legal VOD films available on UK services to British film audiences.000 in 2009 – an open competition for independent software engineers and companies to develop the best collaborative filtering algorithm in order to predict user ratings for films82. and could increase choice as well as cultural diversity. Film fans will be able to conduct territory/language-sensitive search enquiries or enquiries covering multiple territories and content repositories. A favourable ranking of titles on electronic programming guides or online recommendation systems (such as Apple Genius81) becomes an essential factor for attracting an audience. Syria. Sophisticated search. close relatives of Netflix employees. which aims to create a search engine to browse through catalogues from broadcasters. In fact.tgdaily. the potential of European audiovisual search engines online can also be an important factor. The recent announcement of GoogleTV. YouTube surpasses Yahoo as world’s #2 search engine.000. these technological developments could eventually encourage consumption of non-national European films.netflixprize. search patterns for audiovisual content in digital repositories may therefore resemble today’s search on the internet. or Sudan. might become important gatekeepers (and value drivers) in an increasingly digital and convergent audiovisual media landscape. Should European consumers desire to watch more diverse non-national European content.com/rules) (accessed in January 2010). This.com. agents.

The rise of social networking and micro blogging applications such as Facebook or Twitter has transformed the way we communicate. consumer trends on the open internet do not necessarily translate into consumer trends on closed VOD platforms. the majority of VOD revenues are today realised by services that are available on closed networks (IPTV.). a bulk of marketing spend is dedicated to promoting the theatrical release of a film. Screen Digest. micro-blogs. film trailers and (unfortunately) guidance towards illegal services. a Facebook user in Germany who continuously receives posts from friends in Spain about the latest Almodovar film may be inclined to watch this title on an international VOD portal. on www. The kinds of user engagement associated with accessing content on the open internet which we describe in this Section are not often facilitated on ‘walled garden’ services. video-sharing sites.However. which drives uptake and usage of these communities and can be used to promote releases85. users increasingly become trusted film critics for their peers. By circulating entertainment news. companies need to be aware that consumption trends can be stimulated or slowed down through social media. For example. On the other hand.pdf). cable. Because individuals are today more connected than ever through social media. Peer-recommendation mechanisms and social media Audiovisual consumption is also influenced by peer recommendations (‘word of mouth’) that occur in an increasingly international sphere of social media (social networks.obs. The ability of social networks to make or break a release is therefore very important to film companies (the “digital” equivalent to “word of mouth”). etc) which could further accelerate international demand for audiovisual content. 85 Similarly. maintain relationships and obtain or promote information and creative content that is available on the internet and elsewhere. In an increasingly competitive and crowded entertainment industry. As will be seen in the economic analysis (Chapter III). Moreover. etc.coe. 43 . Nowadays. marketing campaigns remain essential to capturing the consumers’ interest.int/online_publication/expert/conf03112009_bisson. the increasingly important role played by search engines does not imply that marketing audiovisual content to target audiences becomes redundant. the uptake and success of Hulu is largely attributed to its syndication model.e. i. which in turn stimulates consumers’ interest in other content versions. A key driver of online communities such as YouTube. this argument that internet users are more likely to be internationally oriented is difficult to substantiate. To reiterate. the tendency of social media users to maintain personal relationships across borders may eventually contribute to an increase in users’ interest in non-national audiovisual content. Dailymotion or Myspace is professionally-produced audiovisual content. the possibility of embedding videos in other sites and social networks (See for instance presentation by Guy Bisson.

theauteurs. Digital Revolution: The Active Audience. February 2010 90 Karbasfrooshan. Context is King: How Videos are Found and Consumed Online. is that consumers value new types of digital networking and collaborative applications. available on http://www. 44 . film – like music or pictures – is becoming a commodity in a ‘sharing economy’. chaired by Michel Gondry. The challenge for rights holders lies in transforming this value into returns on investment.Focus: VOD operators that experiment with promoting content on social networks TheAuteurs86 focuses on developing a state-of-the-art line-up of European films. collaborate with those end-consumers who wish to engage beyond merely watching a film. It remains questionable whether social media currently benefit the audiovisual industry by increasing legitimate viewing figures. discuss them on Facebook and Twitter. and limit the revenues of some intermediaries.com 88 Power to the Pixel Think Tank Report.babelgum. This has also been recognised by the European industry . chaired by Spike Lee and the Music Video Awards. or whether it harms the sector by encouraging illegal consumption. Through a seamless integration of Facebook they can create a user profile with one simple click. and tries to differentiate itself through social networking applications offered on the site. 24 Nov 2009. Moreover.com/ 89 Gubbins. and internet ventures primarily utilise as a free incentive to attract user communities. TechCrunch. This development also gives creators an opportunity to get their works distributed. it has developed two contests attracting emerging filmmakers and music artists: the Babelgum Online Film Festival. The sharing economy is an economy where trade takes place for no monetary gains. 86 www. op. What is clear. It is best illustrated by Wikipedia where people contribute to the building of an encyclopaedia without asking for monetary rewards. People can watch films. The same paper argues that content producers should know their audience. Similar recommendations can be found in a recent report developed for regional film funds which calls for a complete rethink of business models (and government support systems) to engage with an increasingly ‘active’ audience89.powertothepixel. Sharing en masse (through BitTorrent or LimeWire) drives the take up of web services and applications (‘context – not content – is nowadays considered ‘king’90). Free content? For some. Babelgum uses a team of ‘curators’ to attract consumers and build communities. Another innovative example is Babelgum87. however. 30 January 2010.a recent film industry think tank paper88 stated that “it is in the relationship with the audience that new revenue models are beginning to emerge”. This dynamic needs to be apprehended by the film industry. It should be noted in this context that it remains a challenging task to develop business models in an economic environment where audiovisual content is considered a commodity that users can freely share between themselves. Ashkan. It may limit the industry’s overall returns on investment.cit.com 87 www. Michael. and meet others who share their taste in film. and ideally create viable business models on the basis of this new kind of engagement.

However.g. telecommunication companies). 94 See Olivier Bomsel’s introduction to his new book “L’économie immaterielle” on Daily Motion: http://www. direct consumer spending on audiovisual content (subscription. The actual costs for production. Will the ‘free’ concept revolutionise audiovisual finance? This. DVD rental. The Economist. 28 July 2009. The Human Network – Unevenly Distributed: production model for the 21st Century. According to a recent analysis in the UK. Free. seems unlikely. distribution gatekeepers would be stripped of their power93. selection and distribution roles remain and are simply allocated to different players.g. for the moment. iPOD). op. in his latest book. Chris. As a result. Fostering Creative Ambition in the UK Digital Economy. measured against traffic. p. professionally-created content that is available for ’free’ still serves commercial interests such as sales of DVDs. Cory.cit. These different revenue models will most likely prevail in the future.e. 45 . box office returns. 91 Anderson. Mark. this practice may have to come to a halt94. anticipates a digital economy where prices fall towards zero91.but it also provides new marketing opportunities to stakeholders that wish to experiment with new forms of content exploitation (in particular for smaller films by making ‘word of mouth’ possible again). etc. particularly regarding the roll out of digital equipment and infrastructure. Other popular video services including YouTube have not yet been able to do the same.99. most of which experiment with free business models as well as with paid models. 31 January 2008. Some business intermediaries may be less relevant and films could be made available for free as part of a marketing strategy to attract recognition with a view to selling DVDs or merchandise related to the film.6 million.3. merchandise. although this was called “inaccurate” by a Google spokesman. 8 Oct 2009) warns that although subscription fees sofar were able to balance dwindling television advertising revenues. portable devices (e.com/video/xcmts3_xerfi-e-changes-olivier-bomsel-1603_news 95 Analysys Mason. Chris Anderson. ‘Free’ implies a re-allocation rather than an absence of costs and benefits. 2009. Chuck.cit.. telecommunication subscriptions). Free – The Future of a Radical Price. Chris. 93 Pesce. would become the main currency – which would be monetised essentially through advertising. Crédit Suisse estimated YouTube’s losses for 2009 at $ 470. The Guardian.dailymotion. 97 Ross. the products being advertised) or services (i. and Doctorow. the CEO of Google. 96 See e. Hulu to Charge Users in 2010.e. Importantly. selection and distribution are borne by the respective players who will calculate them into the price of other products (i. it seems that only Hulu has so far been able to build a sustainable model on advertising (and even Hulu is now considering launching a payment-based model97). Despite a lot of attention for legal free models96. advertising space (e. and many recent developments indicate that subscription-based content models are on the rise98. May 2009. Chris Anderson's Free adds much to the Long Tail. London. Reputation. Eric Schmidt.g. October 2009. 99 The Triumph of the Monthly Bill (op.) in 2008 was still the single most important source of funding for the content industries. Hyperion New York. In this context. 98 In April 2009. 92 Speech on 7th April to US news agencies and papers – reported in Le Monde 8 April 2009. TVBizWire. generating 75% of net industry revenues95. it is hard “to charge for content that has been commoditised". Anderson. YouTube) or cross-subsidises internet subscriptions (e. but falls short. Production.g. expressed scepticism regarding the willingness of consumers to pay to access news92. overestimation of the economic potential of ‘free’ content – fuelled by the availability of unauthorised services on the internet – potentially threatens 75% of audiovisual finance.

where ‘idea’ is understood as a basic element of thought that can be either visual. This new creativity is much more customer driven with customers deciding when. today over 10 million different tracks are available on iTunes. Today. physical sales of music declined by 46%. Digital music sales are predicted to surpass CD sales by 2012102. available on http://www. 102 Forrester Research. 24 Nov 2009. a fact which bears relevance when considering ways forward for the audiovisual sector101: Between 1997 and 2007. While in 2003 only 1 million music tracks were licensed on the internet. this is an idea discussed in the conference report of Power to the Pixel: “The driving force behind such developments will be the engagement with audiences. e. film studios are in danger of repeating the behaviour of the music industry. consumers could in 2007 legally access more than 6 million tracks103 (or 10 million according to Apple). Record companies lost control of distribution. 106 Again. Studios Hurt as DVD Sales Fall. - Consumer engagement in product and service development In an increasingly networked economy. MarketWatch. David. ICTs enable more collaborative ways of ‘ideation’ and creation. 6 Jan 2009 105 Hippel. Since its inception. Where is content being driven and how will this change the role of storytellers and producers?”. Cambridge 2006. etc. innovation and economic growth are dependent on integrating diverse stakeholders.com/ 107 Design ideation can be seen as a matter of generating. some believe that it becomes possible to involve a greater diversity of professional and non-professional users into audiovisual development. This isn’t just a matter of personalisation but of customer engagement as communities. into product development and marketing and communications processes105. As such. working jointly on developing ideas for film scripts. Most excitingly. The MIT Press. As end-consumers become more ICT literate.g. There are many reasons why the sector’s experience cannot easily be compared to that of the audiovisual sector (i.e. Power to the Pixel Think Tank Report. And Other Fun Stats From The Philnote. However. iTunes Sells 6 Billion Songs. 103 IFPI. in Fowles. The turnover of the music industry went from $ 40 to $ 27 billion. 2005:613). creation. developing and communicating ideas. 104 Schonfeld. See: Wilkerson.Focus: Experiences to keep in mind from the music industry The music sector was the first creative content industry to really experience the impact of digitisation on its business model. where and how they engage with cross-media products. In the following box we illustrate how this innovative practice emerges on the fringes of the audiovisual industry107. 100 Although Apple iTunes recently introduced short periods of exclusivity. January 2008.).powertothepixel. Digital Music Report 2008 – Revolution Innovation responsibility. Erick. 46 . the ability to manipulate moving images and interact with content allows customers to drive content. the iTunes store has sold 6 billion songs104. Democratizing Innovation. Eric Von. both in education and practice (Broadbent. 101 According to some commentators. it is an essential part of the design process. by making access to content for users too burdensome. 1979:15). concrete or abstract (Jonson. distribution and exploitation106. The End Of The Music Industry As We Know It. This not only illustrates the enormous potential of online distribution but also the dominant position of Apple in music. or nurturing the computing power of several servers to work on heavy resource-dependent animation projects. including consumers. digital technology has undoubtedly turned the music business upside down. 22 September 2009. there is much less sequential versioning in music100 and the experience of consuming a song is different as one listens to it repeatedly. it accounts for around 70% of digital music sales worldwide.

including the Peach Open Movie Project. The VODO project has been built on experiences with Steal This Film 1&2. talk shows. but the concept can also be applied to a film’s website and to promotion material. 266 pp 613-624. The graph below illustrates the essential activities that make up the value chain of the industry: − audiovisual development and production (a) − sales. Several large companies. B (2005) Design Ideation: the conceptual sketch in the digital age.000. M. demonstrating the ultimate level of end-user involvement. while asking consumers to participate through voluntary donations. With each activity an audiovisual good or service gains in value. 61-78. A Swarm of Angels and many others. and − exploitation (c). What is strategy? Harvard Business Review. Focus: crowd-funding of audiovisual content Crowd-funding supports collaborative filmmaking. and a good example is VODO.Focus: collaborative filmmaking and funding A good example of collaborative filmmaking is Wreck a Movie. etc. films which gathered substantial amounts of money from their fans. 108 A value chain is a chain of economic activities. The audience can become part of the process by submitting ideas and comments to the filmmaker. Timo Vuorensola. however. (1996). Design Studies Vol. E. casting shows. User involvement in product development may be more applicable to some forms of entertainment than to others. 47 . Age of Stupid. See Porter. promotion and distribution (b). have opened up this process to their consumers. The film’s director. has developed a site to assist others to crowd-source their own films. 2. See: Jonson. An assessment of the audiovisual value chain therefore shows how different players and activities contribute to the overall value the end-consumer attributes to audiovisual content. like Dell or Best Buy.3 Impact on the audiovisual ecosystem Section 2.) their involvement in feature film creation remains so far relatively marginal. The project is based on the success of the crowd-sourced science fiction cult hit Star Wreck: In the Pirkinning which was downloaded over 8 million times before it was picked up for DVD distribution by Universal. Numerous projects have developed similar models. While. starting from its creation and ending at the point of sale/its consumption. for example. the Rotterdam Film Festival introduced its own crowd-funding experiment called Cinema Reloaded with a view to realise a short film for € 30. More recently. on the competitive interests of different stakeholders (old and new) as well as on audiovisual finance. This model may not work with all films. Nov-Dec.g.2. consumers are already today significantly involved in the creation of some television content (e.2. all of which build on fans’ input and appreciation as the main reasons to buy.3 assesses the potential impact that VOD may have on the audiovisual value chain108. inviting anyone to raise new ideas for possible company products using a dedicated idea management software open on the internet. VODO offers free content from creators who want to share over BitTorrent.

110 The long tail has implications for the audiovisual industry. To some extent it promises to solve the problem of scarcity in relation to shelf space and physical distribution. and by helping consumers to choose among the diversity of content offered. At the same time. it is often argued that digital distribution favours large content aggregators as much as creators of niche products110.e. By analogy. It takes $ 10. This could be in favour of niche content which includes many European films (the Long Tail theory109). Consumers may eventually consume a more varied range of digital goods and services. video/DVD. i. 109 Anderson. The Economist.Market entry . each of which has the ability to bundle content.Sekten) by Susanne Bier from 1997. This is mainly related to the large amount of back catalogue that is available on Netflix (and its VOD site) but it is unknown whether this example may applies to the entire market. In the long run.e. Lovefilm. For audiovisual content.It also shows how the value chain encompasses multiple geographic markets and exploitation windows (i. 48 . broadcasting. although the number of titles bought each year has risen sharply. which will be detailed below. can appeal to a lot of customers by providing usual best-sellers as well as more marginal products. the firms that group together hits with niche content. these include for example YouTube. theatrical. VOD): The Audiovisual Value Chain and Digital Distribution a DEVELOPMENT & PRODUCTION DOMESTIC TERRITORY PROMOTION & DISTRIBUTION INTERNATIONAL SALES DIGITAL IMPACTS .Release patterns . 2006. 26 November 2009). 2010 The impacts that digital distribution has on the value chain. Such aggregators. can be summarised as follows: − VOD decreases distribution and storage costs. The CEO of Netflix reported that 80% of rentals related to films that are over than 3 months old – Netflix stores 70.Marketing .000 to make a DVD master and only a couple of hundred to make a digital file. VOD enables the exploitation of back catalogues and films that had limited release or are no longer to be found in shops and theatres. iTunes.Finance b OVERSEAS TERRITORY PROMOTION & DISTRIBUTION EXPLOITATION EXPLOITATION Theatre Video/DVD Theatre Video/DVD Broadcasting VoD c Broadcasting VoD KEA.Distribution . A good example is the film Credo (orig. which is the third-best selling film on Jaman (the film is no longer available on any other traditional distribution channel).000 titles (Dow Jones Newswire on 04 March 2009). xBox or Amazon. Chris. The Long Tail. Anderson argues.Rights licensing . Netflix (the rental DVD shops) and Amazon are confirming that a large proportion of revenues come from non-hit titles. Digital distribution can reduce distribution costs and therefore increase rights holders’ margins. Hyperion New York. a recent study by Nielsen on the Australian book market pointed out that. the market share for niche titles fell in favour of bestsellers (A World of Hits. the real winners are likely to be the aggregators.

for example. this increasing pressure on theatrical exhibition has been illustrated by exhibitors in Europe seeking to protest against Disney’s earlier DVD release strategy for the film Alice in Wonderland.1 Effects on the competitive dynamics of the industry A systemic perspective that takes into account the current market position of different players. Cinema operators are therefore seldom outspoken proponents of digital distribution (or. or should their windows continue to be shortened due to an increased popularity of VOD and a resulting earlier scheduling of VOD exploitation. 111 Cut off date of research with submission of draft report.cineuropa. the Netherlands and the UK.g. They risk reduced revenues should day-and-date releases become more common. who are currently withstanding the global economic downturn113. such as telecommunication or hardware manufacturers. However. and VOD service providers). 49 . the duration and chronology of release windows are changing (further explained below). Examining the performance of a recent EU production in EU markets illustrates the challenges and opportunities ahead. distributors.2. It also touches upon the interests of original rights holders. pay-TV operators.− Social media and other interactive tools enable the audiovisual industry to target more fine-grained audience demographics. February 8-14. 112 Examples of EU exhibitors are Pathé. the EU country reports on box-office intake on www.e. UGC. A lack of finance inhibits experimentation with new business models. broadcasting). and can be utilised by independent rights holders and media service providers to promote culturally-diverse European content. 2. Data taken from Variety.3. Examining the case of the independent European film industry helps to illustrate this. set up new distribution platforms (also with the goal to further finance the roll-out of their equipment). 2010. who wish to maximise total revenues. for that matter. including Belgium. This represents only as many screens as a market comparable to Belgium and illustrates that traditional distribution can be a bottleneck to the international exploitation of independent film. This implies increased competition between players in certain windows (i. etc. The award-winning White Ribbon from Michael Hanneke has been released on only 22 screens in the US market – the largest market in the world111 – and subsequently grossed a meagre $ 600 000 in the US compared to global box office revenues of € 16 million. to boycott a shortening of the exclusive theatrical release window. have long benefited from their exclusive exploitation window at the top of the release schedule (which they of course pay for in licensing fees). and may increase the role of international licensing in the future if demand for non-national content develops. 114 Most recently. Protest occurred across the EU. − As VOD is not creating significant returns for the moment. − VOD enables new players to enter audiovisual distribution and creates competition.g. − As the number of content versions increases. 113 View. Established players (e. Cinema operators112. cinemas.org.) seek to retain their position while new entrants. other exploitation windows)114. − To maximise returns on investment. and copyright infringements continue to threaten digital distribution. film financiers refuse to make significant investments in this new market. VOD rights are often bundled with other exploitation rights (e. broadcasters. − The borderless nature of the internet allows for the possibility of international content exploitation. Gaumont and Svensk Filmindustri/Bonnier. their involvement in audiovisual production and distribution as well as their interests in the roll-out of technical infrastructure is needed to assess the potential future developments of the market.

Similarly.116. On They are interested in protecting the value of broadcasting windows (pay-TV and FTA). cinema-on-demand models (including MEDIA-supported Digital Alfie) can to some extent help exhibitors explore what types of content their local audiences would most prefer to experience theatrically.org/files/Paris%202009/A%20practical%20VOD%20insight. This can be done by partnering with VOD platforms or by setting up platforms (collectively or. 12 June 2009. European producers are seeing DVD revenues decline and wish to prepare for a future when VOD returns may be more significant. some distributors are now venturing into VOD within their traditional territories118. Wild Bunch with FilmoTV (idem). This. As a result. rental grows. Dave. On the other side. to some extent. some small outfits experiment with ‘reverse windowing’ – making available a work on VOD shortly before it is released in cinemas – to build a fan base before the title is shown in theatres115. page 9. Some have dramatically changed their business models to adapt to VOD. broadcasting and DVD/BluRay. Their reliance on pre-finance makes them dependent on contributions from established players (such as distributors or broadcasters). Those producers that exploit their VOD rights directly face the challenge to of making clever use of promotion and distribution techniques to make up for the lack of investment in marketing. 118 A summary of distributors’ practical interests in VOD is provided by Philippe Leconte in a presentation prepared for Europa Distribution 2009 (2009) A practical insight into VOD. retrieved from http://www. our interviews suggest that distributors generally receive smaller revenue shares from VOD (5-10%) than from DVD (25-30%)117. Some producers. An important drawback for them is that once committed to a VOD premiere. In general. they may eventually be significantly less prepared to finance audiovisual works. For example. national distributors are interested in maintaining their overall revenues from theatres. through VOD they can potentially exploit their content in territories where they have not been bought by distributors and/or broadcasters. However. Delivering the Goods. help them build a loyal fan base. 119 McNary. For example. 116 In addition. in the case of the few larger production companies in Europe.pps. 8 June 2009. Variety Magazine. Audrey. However. Another interesting role is played by European broadcasters (public and private) which primarily operate at national level (even those that run multiple television stations across the EU). 117 Also see WSJ (2009) Studios hurt as DVD sales fall.cinemas can to some extent also benefit from VOD. the majority of European audiovisual producers have not become very active in VOD so far. individually). They are also threatened with the prospect that producers may manage their own VOD rights in the future. Speciality Biz Scores with Home Run – Indies see hopeful signs in day-and-date video-ondemand debuts. the opportunity to schedule a wide theatrical release will be curtailed. 50 . limits their ability to experiment with new distribution models. Some examples of collective strategies are UniversCine from France. Sales agents’ current business models are dependent on minimum guarantees from distributors but these are so far uncommon in the digital market place. Svensk Filmindustri with SFanytime (direct) and TrustNordisk (via VOD partners). they are also 115 Ward. EGEDA/Filmotech from Spain and FIDD/Movieurope from Denmark (see further below). however. Like producers. Moreover. closely following successful VOD strategies from independent distributors in the US119. as is the case with Hollywood majors. and seem reluctant to support a new version (VOD) that could cannibalise existing revenues while creating few returns. see VOD as an opportunity to bypass intermediary players and increase their revenue share in the long term. Examples in Europe include Celluloid Dreams with TheAuteurs (direct & via VOD partners). One reason for this is that the market is as yet not very profitable compared to other release windows (see Chapter III).europadistribution. sales agents may attempt to retain VOD rights and partner with VOD providers or undertake promotion and distribution roles themselves. Screen Daily.

Virgin and Numericable (source: www. There are several market entrants who only impact the VOD market and have no stakes in other exploitation windows. A major difference between these and the players is that these new entrants often have an additional commercial interest – the rollout of their technological products and services. Liberty Global is the largest and most international player. etc. Orange. In any case. followed by Kabel Deutschland. Moreover. Microsoft Xbox. and further examples of interesting VOD initiatives are provided in the appendices. BT and Telenor are some of the (few) players that operate across borders.123) and infrastructure providers (telecommunications and cable operators)124. A summary is included in the following table. M6 and Canal+ have recently joined forces to counter potential competition from Hulu. DT. Content services are therefore also used to increase the usage of specific distribution systems or end-devices. page 183. 120 In France.keen to promote their brands via catch-up services. particularly if the rights for foreign markets can still be commercialised. Roku. 124 Some of the most prominent European telecommunication operators are Orange. In other cases. Such requirement could of course cause further issues if a rights holder was to make available international licences. broadcasters may negotiate freezing the VOD window for a certain period of time during and after a specific broadcast122. such as equipment manufacturers (Apple. Telefonica. They are often limited to national borders. Deutsche Telekom (DT).com). Slingbox and ZillionTV are also trying to tap into the market for VOD via television (also known as over-the-top VOD). 122 During an interview a French distributor who engages actively in exploiting its VOD rights in France also indicated that the company often has to renegotiate VOD “freezes” with VOD platforms for a certain period of time after a programme has unexpectedly been sold to a broadcaster who requires exclusivity. broadcasters are likely to be powerful players in the emerging VOD market as they play an important role in financing content production in several countries. VOD rights are therefore often bundled with broadcasting rights to show programmes (or parts of them) on catch-up services immediately after their broadcasts. 121 Most catch-up services are offered on the open internet as well as via third parties’ platforms. or to withhold them for a certain period of time to protect the broadcasting window121. private broadcasters TF1. 123 Set-top box manufacturers such as Tivo. See Audiovisual Observatory (2009) Video on Demand and Catch-up TV in Europe. A more detailed overview of these stakeholders’ interests. BT and Telecom Italia. and do not want to miss out on the future opportunities of digital distribution120. Belgacom. as well as those of other players such as Hollywood majors and internet companies. Among cable operators. most of these new players have so far not participated in financing audiovisual creation and therefore do not share all of the risks associated with content production. Commercial broadcasters are keen to retain the ability to exploit VOD rights on a territorial basis whereas public service broadcasters could imagine making available their commissioned content on a pan-European basis (this is further examined in Chapter IV).e-mediainstitute. 51 .

Exploit their rights in this new version market to make up for declines in other markets .) .Summary mapping of competitive interests Industry Digital Distribution-Interests Digital Distribution-Threats Hollywood majors (Sony. etc. Johnson.Small producers may follow different (sometimes collective) VOD strategies while large producers can try to exploit their catalogues individually Broadcasters (public and private. MGM. free to air/ pay-TV) – market reach: in Europe mostly national – some run television stations in multiple territories: RTL. still a very important revenue stream . which may have an impact on overall turnover (see above) . Pathé.Majors emphasise the need for copyright protection while 125 searching for a balanced approach to net neutrality . in some cases pan European or even global .Cannibalisation of DVD revenues and television.Offer their product directly to end-consumers . Variety.) . etc.As DVD revenues decline. Universal. 125 see e. Qriocity. Hollywood majors are increasingly investing in VOD despite the modest size of the current market . Stemming the Tide.Lack of production finance in current environment of uncertainty Selection of VOD initiatives: UniversCine EGEDA/Filmotech FIDD/Movieurope . larger ones include Nordisk. Epix .Act collectively to gain fair deals on global VOD platforms . Google. etc. paid content.Free themselves of marginalisation in analogue distribution channels .) – market reach: primarily national.Consumer demand to access content anywhere at any time as well as copyright infringements may reduce ability for versioning European Producers (mostly SMEs.Increased marginalisation through Hollywood films on global platforms due to lack of prominence on services/limited marketing spend .) – market reach: global Selection of VOD initiatives: Hulu.Loss of a share of their revenues to new distribution and search providers (ISPs. Ted. 11 January 2010 52 . Warner. Svensk Filmindustrie etc.They are interested in turning VOD into a significant revenue stream and in experimenting with different business models (advertising.Reduced ability for versioning.g.Target niche audiences and develop audiences across borders due to reduced distribution costs and new marketing techniques . partnerships. Crackle. Viacom.

Fewer minimum guarantees are paid in VOD .Act as digital service providers to localise and promote content subject to linguistic and cultural preferences of audiences 53 .Increased competition through new players entering the market place (ISPs.) . etc.Possible cannibalisation of traditional windows (and BluRay) through VOD Selection of VOD initiatives: The Auteurs SFanytime .Bundle VOD rights with broadcasting rights to maintain control over multiple version markets where feasible International sales agents (such as Celluloid Dreams. Svensk Filmindustri.Expand their broadcasting services to VOD (using the power of their brand to make VOD services succeed) . TrustNordisk) – market reach: global .Use catch-up or before-TV services to promote digital offers .Turn into brokers and content aggregators of digital rights in an increasingly atomised audiovisual landscape .Broadcasting revenues may get cannibalised by VOD .Loss of control of national markets with the emergence of over-the-top TV Selection of VOD initiatives: BBC iPlayer Project Canvas Maxdome TF1/M6/Canal+ BSkyB .) . Google.Loss of exclusivity in pay-TV window . Wild Bunch.Sky. etc.

Private investors are so far reluctant to bridge this financing gap.eu/avpolicy/docs/other_actions/col_2009/assoc/cepi_en.2. and their ability to buy rights bundles for all modes of exploitation. box-office intake and VOD − Data collected for a French film distributed in Sweden. VOD offers primarily contain older works that have already been exploited in other windows. the VOD strategies of companies that have a stake in other version markets will be influenced by whether their overall returns increase or not.europa. It could be argued that the industry initially requires extra finance to bridge this gap and create demand for VOD. is the single most pressing issue for independent television producers. 126 Sources and further details for these figures are provided in Chapter III. 54 . Should VOD revenues remain marginal and those of competing version markets remain stable or only reduce slowly. VOD represents less than 3% of turnover generated through television. broadcasting and DVD.2. See: http://ec. but the result of rights holders’ abilities to earn revenues in this version market. have little incentive to enter the VOD market given that the returns in VOD are far smaller than in theatrical distribution. France and Denmark shows that DVD revenues – despite the current decline of this version market – are still far higher than those for VOD. in France. and few public funders have invested strategically in VOD to enable rights holders to enter VOD at an early stage. 127 The European Coordination of Independent television Producers (CEPI) states in its contribution to the European Commission’s Reflection Paper on creative content in a digital single market that the dominant negotiation position of broadcasters. traditionally important pre-financiers of audiovisual production. As a result. namely that: − distributors and broadcasters. As will be shown in Chapter III. The question would be whether such intervention should be left to market forces or whether it should be facilitated by the public sector.3.2 Implications for financing and further take up of VOD Further roll-out of VOD is therefore not an inevitable consequence of digitisation. they will continue to place little value on VOD rights − independent production companies and talent require pre-finance from distributors and broadcasters to create audiovisual products. If VOD remains a small market and if these players remain the key financiers of production. They do not provide minimum guarantees and do not buy exclusive rights to exploit new works on VOD. This creates a situation where several factors inhibit the fast development of VOD (especially for new audiovisual works).pdf (accessed January 2010). It limits their ability to build up valuable rights libraries and benefit from VOD. VOD for the moment represents a comparably small share of the audiovisual market126: − VOD represents approximately 1 % of the overall film audience in the UK − Our sample of films shows that. This dependency will make it difficult for them to retain VOD rights if their financiers wish to acquire them (if only to withhold them for a period)127 − new operators of digital distribution platforms cannot significantly enter into production finance as long as their returns remain marginal. there may be reluctance among audiovisual stakeholders to bet on VOD. Moreover. Public sector support could arguably be given to content creators to retain VOD rights and experiment with new forms of digital exploitation.

europa.4. 129 Chapter III includes a longer analysis of the public policies that shape certain release window characteristics in some Member States. Fastweb additionally points out that VOD revenues increase due to same date/day releases on home video and VOD.2.2. different technological infrastructures. to marketing techniques and to licensing practices. consumer spending on different content versions and the historical development of audiovisual regulation in each country.2. Section 2.2. It illustrates that many European audiovisual companies are already today taking steps to adapt their business models to this new reality. See http://ec. This influence relates to the implementation of release windows.htm (accessed January 2010).4 will show that VOD already influences business practices in the audiovisual industry. and that pricing mechanisms can be appropriately equipped to maximize investment interest and at the same time make attractive content available in alternative channels.1 Changing release window patterns The position. 130 In its contribution to the Reflection Paper Ericsson argues that release windows for VOD act as a barrier to the availability of digital content.3 outlined general industry trends.4 Impact of digital distribution on industry practices Section 2.eu/avpolicy/other_actions/content_online/consultation_2009/index_en. duration and chronology of different release windows differs across territories due to local audience preferences. 55 . Changing release window patterns illustrate that the entire value chain is affected by current transformations: − Theatre operators want to keep the theatrical window as long as possible − Pay-TV operators are cautious of competition from VOD (especially SVOD) services − Distributors would like to benefit from shorter windows in order to benefit from theatrical promotional campaigns − Some new entrants argue that in order to fight unauthorised downloading windows should disappear altogether130 128 Our analysis of the legal frameworks concerning VOD in the EU Member States will identify some cases in which state regulation concerning the duration of some windows exists (for example in France and Germany). 2. The duration of each of the exploitation windows is in most countries regulated through internal industry agreements between different stakeholders128.2. Our national review (see appendices) shows that government intervention to regulate windows is rather rare and takes place usually in coordination with industry stakeholders129.

g. Also in Germany. Sweden) but has moved to 15 months (Denmark. Hungary. Italy). Contrarily. Free-TV Window Between 12 and 24 months after theatrical release. The balance is delicate: the value of any window (especially theatrical) is reduced if the following window (i. Switzerland and in some cases Belgium.2% of turnover is invested in co-production or 30 months if there is no co-production involvement. VOD and Pay-TV windows are scheduled earlier across Europe than they used to be. Pay-TV is traditionally scheduled after approximately 18 months (Austria. Norway.A recent IVF survey. Notably in France. for which Disney implemented an accelerated release window pattern to increase DVD revenues. Spain. Germany. DVD sell-through. Again countries differ substantially. In France. Italy. Online Distribution (Streaming/EST) The VOD window currently opens approximately 4 months after theatrical release. Pay-TV Window Between 9 and 15 months after theatrical release. Hungary. Spain and the UK the VOD window is often opened day-and-date with DVD. Croatia. In some countries the DVD window can open slightly sooner (Portugal 2 to 4 months. European exhibitors in several countries tried to boycott the strategy but in the end had to give in. French Pay-TV distinguishes between a first window (10 months if investments are made in the local industry. although some countries (e. Spain). Italy. day-and-date with DVD. UK 3 to 4 months) while in other countries distributors choose to open it slightly later (Denmark 4½ to 6 months. Poland. Norway. 24 months if not). While in many countries the Pay-per-View window does not open until 9 to 12 months after theatrical release. Under the 2009 agreement. pay-TV or VOD) is scheduled earlier as this limits the exclusivity of the former. Austria 6 but 18 months for films that received public subsidies). Austria) the VOD window still opens simultaneously with Pay-per-View. summarised below.g. Overall. the industry agreed in 2005 to open it slightly earlier (33 weeks compared to 9 months for Pay-per-View) and agreed in 2009 to change this to 4 months. Pay-per-View Window Differs per country. In most countries (Austria. Germany and Spain 4 months but 6 for films that received public subsidies. Subscription-based VOD and free VOD are still scheduled later. UK) the Free-TV window opens after at least 18 months. it opens after 22 months if at least 3. attempts by UK film maker Ken Loach to release some of his old films on Youtube on an international basis led to a blocking 131 A detailed version of the summary provided can be found in the appendices. Belgium. Sweden. Poland 6 months. Hungary. Denmark. 12 months (Croatia. which resulted in a shortening of the theatrical release window. Sweden. Finland) it may open as early as 12 months after theatrical release. 9 to 12 months in the UK. This has been illustrated by the most recent example of the film Alice in Wonderland. There is a move towards more flexibility. one can observe that DVD. 56 .e. 12 months if not) and a second window (22 months if investments are made in the local industry. examines how release windows for films are changing in several countries and how the VOD window is integrated into existing arrangements131: Window DVD Months after theatre release The DVD window has generally moved from 6 to 4 months after theatrical release. In many countries (notably Italy and the UK) an additional distinction is made between rental VOD and electronic sell-through. there is a clear trend towards earlier windows. Although in some countries (e. it already opens in Switzerland after 6 and in the UK after 4½ to 6 months after theatrical. Croatia. and as early as 6 months in Switzerland.

youtube. day-and-date with DVD releases.132 As regards VOD. Especially for European titles that are increasingly under pressure to quickly succeed in ever-shortening theatrical windows. In the US. the survey and our interviews suggest that in many countries the VOD distribution window is gradually shifting to approximately 4 months after theatrical release. New entrants as well as incumbents have started experimenting with alternative durations and sequences (within the limits of their respective legal frameworks). such flexibility may be beneficial. In the following graph we illustrate the VOD window in the context of other release windows and explain the associated challenges in more detail. extending BSAC (2005) New Business Models for Audiovisual Content.10) There is no general rule as to how a release window pattern could best benefit the European film industry. A third alternative is currently being developed: some 132 Loach’s other seven released films can be seen here: http://www. Steven Soderbergh already tested the idea of day-and-date releases in 2005 (releasing a film on the same day and date in theatres. Optimal durations of windows differ per title.of one of his films in certain countries where distribution rights had already been licensed (such as France).com/user/KenLoachFilms 57 . However. this resulted in fierce resistance and a boycott from theatres. p. on DVD and VOD) with his film Bubble. Films that did not create significant returns in theatres could be more quickly released on VOD (rather than being blocked for an agreed time period) which. in turn. TIME Domestic exploitation Theatrical DVD/VHS Broadcast TV On-demand Potential of reverse-window-release Exhibition Potential of day-and-date with theatre release Video rental/ Video sell-through VOD (new) day-and-date with DVD PPV VOD (new) Premium pay-TV Free-to-air TV VOD (archive and / or catch-up TV) windows henceforth remain open in perpetuity (KEA graph. might promote their popularity among certain audiences. and more and more flexible exploitation strategies are currently tested.

can help to achieve this. is a key change introduced by the digital shift. Rights holders. believe that by adhering to such versioning mechanisms the value of other exploitation windows can be increased. on the contrary.2 New marketing practices The audiovisual industry is increasingly making use of social media. etc. rights holders who want to exploit their content in this window may increasingly choose to license their content on an exclusive and/or territorial basis. Internet-based VOD platforms try to benefit from integrating social networking strategies into their business models (see box below) in order to accelerate word of mouth. which is an even further-reaching example of reverse windowing. Good examples include Europacorp’s Home (2009).4. Of course. Film companies therefore need to acquire technological expertise and learn how to address audiences that may no longer be confined to a geographical or linguistic market.) or feel acquainted with. More recently the Sundance festival offered three feature films in rental format on YouTube at the day of their premiere. after which they close down to protect the other windows. This means that with time. it could become a more important part of rights holders’ exploitation strategies. and potentially also an appropriate windowing strategy for specific European films. 133 See Ericsson’s submission to the recent consultation on the Commission’s reflection paper on creative content in a European digital single market. Making sophisticated use of consumer data. 2.com/2010/01/08/avatar-social-media-web/ (accessed January 2010). 134 An interesting case study on the use of social media to promote the film Avatar is available on Mashable: http://mashable. if not always consciously.eu/avpolicy/docs/other_actions/col_2009/comp/ericsson_en.rights holders are experimenting with ‘reverse windows’ in which films (or parts of films) are released on VOD at an early stage. and up to a limited number of downloads. As the first window for VOD exploitation is moving up. bypassing traditional intermediaries such as distributors or broadcasters. scheduled simultaneously or even before the DVD release. http://ec. These can be particularly useful to European distributors and other players who lack the marketing spend of Hollywood studios to promote works via traditional media channels. refer to the second VOD window described above. aggregators and search engines and to reach significant audiences are required. so as to maximise revenues.europa. 58 .2. as well as promoting talents via social networks. Many of our interviewees pointed out that most consumers are likely to only use a limited number of platforms which they trust (for payments. Memento’s Amerrika (2009) offering free VOD before theatrical release respectively during a limited period.pdf (accessed January 2010). which is ranked at the end of the exploitation schedule. who argue that price discrimination can today be facilitated by DRMs rather than by blocking an entire release window. it is important to understand that many of today’s policy debates concerning international licensing (and related questions of exclusivity) primarily. Finally. This can empower original rights holders. provided they understand how to build up relationships with end-consumers by engaging with them in new ways. p. this practice of applying VOD windows is contested by some players in the industry133. If a new relationship is to be built strategic skills to partner with brands. However it is also relevant to large Hollywood players seeking to capture the attention of a new generation of media consumers134 more prone to social networking and content sharing. micro-blogging and content sharing sites to promote audiovisual content to audiences. The ability to interact directly with consumers.6.

tv/file/2830689. For the moment. This may limit the 135 The creators of Paranormal Activity convinced Paramount Pictures by first gathering viewers on Eventful. After 7 months. In the following. 59 . have shaped the new licensing practices in the industry. Minimum guarantees for European VOD rights are so far very rare. Four Eyed Monsters).Focus: Using social networking for film promotion Filmmakers are increasingly using social networks within their marketing campaigns to create a buzz among potential audiences. $ 19. Unlike traditional marketing. This can be done by posting part of a film (e.000 direct donations. on which users indicate films they would like to see.000 from merchandise and approximately $ 3. the most important investors through pre-sales are distributors and broadcasters and – in the case of VOD – sometimes (but rarely) telecommunication operators137. It also requires persistence in terms of feeding the network. Review of current VOD licensing practices Territorial demand continues to shape VOD licensing Commercial users’ demand for VOD rights shapes licensing practices for digital distribution. In Brazil. 2. 000 ($ 23.4. or by posting behindthe-scenes material in advance. digital marketing requires promotion of the film over longer lead times to grow networks and to create appetite for the final product. aggregated revenues approximated $ 55.2.sitasingstheblues. 137 Some European telecommunications operators have in the past paid minimum guarantees to Hollywood to obtain rights bundles covering multiple titles for their new platforms. Often-quoted successful examples such as Paranormal Activity have used social networking to generate a significant fan-base before the film is picked up in the professional circuit135. even generate reasonable revenues by social networks alone. and some.3 Licensing audiovisual rights for digital distribution Both the emergence of new exploitation opportunities and the uncertainties caused by shifting release windows. to keep people interested (and to eventually persuade them to download or stream the audiovisual work).000 excluding personnel and legal costs.blip. such as Sita Sings the Blues. These players are primarily interested in serving linguistic markets and therefore buy rights for certain territories. after which they can arrange and promote a (digital) screening in a nearby theatre as soon as there are sufficient users in their region wishing to see the same film.com. Rain Networks has created the MovieMobz network. after which the film was promoted and eventually reached #2 in US box office.000 per theatre. 136 Sita Sings the Blues (www. distributor and broadcaster). inciting people to donate and/or to buy the film’s merchandise136.com) was produced with a budget of approximately $ 80.g. Source: Presentation by Nina Paley (author) at http://www. Rights holders licence the usage of rights in exchange for up-front investments into audiovisual production. social networks may even expand to promotion of theatrical exhibition. changing revenue structures and unpaid downloading of copyright-protected content. current VOD licensing practices will be reviewed before examining potential future trends. by posting similar content or previous content from the same creators. Finally.

iTunes has negotiated short windows of exclusivity for some of the films shown in the initial two to three weeks. as a result.cit. As has been illustrated. to either exploit them at some point or to hold on to them with a view to increasing the value of other windows140.). As a consequence. As indicated before. In the case of catalogue rights. Studios make bigger push for digital sales. The system in place ultimately results in great barriers to entry for the above companies. the new media offers are hindered. they have an interest in maintaining high revenues from theatrical. New Media Guide 2009). Reasons for this are two-fold: First. David. all involved players (new platforms. Traditionally. thereby preventing the circulation of contents on new platforms. by the content providers’ commercial practice to sell their works based on multiplatform exclusive rights or holdbacks clauses. VOD operators most of the time cannot afford to buy exclusive rights due to their limited VOD returns. 139 As outlined earlier. Exclusivity can pertain to a specific territory. 142 As part of its submission to the European Commission’s Reflection Paper on creative content in a digital single market. the main motivation for exclusivity is to control versioning across different platforms. They prefer to spread their nonexclusive rights over a large variety of platforms for a comparably short period of time. Exclusive rights are primarily licensed for exploitation in these release windows139. indicated that the service would most likely make audiovisual content available on a territorial basis. http://ec. this may change if the value of the VOD window increases and VOD operators wish to compete with other exclusive exploitation windows143. states: "Currently.htm (accessed January 2010). the distributor holds the exclusive rights for a certain territory across windows in return for its (territorial) investments in marketing and promotion. 140 The Independent Film and Television Alliance recommends that rights holders negotiate rights for digital distribution separately from traditional rights. op. Wall Street Journal. VOD rights are currently primarily licensed on a territorial basis138. broadcasting and DVD exploitation. which also provides VOD services. 138 Interviews with iTunes. DVD and broadcasting window.prospect of international distribution as well as the desire of original rights holders to reach new audiences across borders. to gain an advantage over competitors by excluding them from distributing the same content in other versioning markets and. Given the little returns of VOD so far. unless VOD operators are able to provide similar amounts of minimum guarantees as offered by traditional distributors and broadcasters (IFTA. the Italian ISP Fastweb. on the side of consumers". those are the terms of the market for the moment. 143 In some cases. inter alia. distributors and broadcasters sometimes acquire VOD in addition to these exclusive rights for little additional payment.eu/avpolicy/other_actions/content_online/consultation_2009/index_en. As a result. Second. However such a recommendation is difficult to follow under current conditions. rights holders are cautious to sign exclusive deals at a time when the development of VOD is uncertain in order to ensure that the market remains competitive. This practice has been criticised by some VOD service providers as a barrier to market entry142. granted in favour of specific players (often in dominant position on old media). However.europa. Such copies are either available on a separate disk or on a website for download against a secret code (Wilkerson. Non-exclusive licensing is so far a common practice as regards digital distribution Distributors and broadcasters are usually the largest investors into production. 29 December 2009.141. so as to ensure that they retain control over their IP. 141 Many studios have also started to offer free digital copies with the purchase of Blu-ray disks. or rights that have so far not been sold in certain territories. It will then try to sell specific forms of exclusivity within the theatre. 60 . most individual VOD rights deals in Europe are currently made on a non-exclusive basis for short periods of two to three years. and an increase of illegal means such as piracy. iTunes maintains territorial licensing of creative content for commercial reasons (in the case of music). As will be explained in Chapter III. a platform that offers content across multiple territories in the EU. to increase returns on investment. ISPs and aggregators of content for new media) have serious problems in accessing audiovisual works and therefore satisfying consumers’ demand. rights holders tend to licence them on a non-exclusive basis. specific terms of use. As a result. a specific technology or for a specific duration.

while in others the economic rights are initially vested in the co-authors but granted to the producer through presumptions of assignment (France. some differences need to be highlighted. a sale agent and a broadcaster). Collective rights management is so far mainly used to administer certain remuneration rights such as private copying. The licensing process in audiovisual is different and less complex than in music144. editors. screenwriters. Netherlands. However. acknowledged that a successful transition to the emerging online market for the distribution of films would most likely continue to be based on direct licensing. Authors are the owners of copyright for works. This indicates that European rights holders face the danger of marginalisation if they do not succeed in closing similar deals in the future.g. This is explained by the fact that film producers usually negotiate fewer transactions (with a national distributor. Ireland and the UK had to include the director as the author of an audiovisual work into their legal framework. and Sweden). However. Denmark. Audiovisual producers have little history of mandating collective management bodies with the management of their rights.). Germany. given the fact that previous policy debates about media licensing practices have not often distinguished between licensing practices in different creative content sectors. in common law countries the copyright system is used to protect the role of the producer as the sole author of the film (Ireland and the UK). rental and certain forms of communication to the public (e. issued in 2005147. large European VOD service providers (primarily those run by telecommunication operators) have secured exclusive VOD rights from Hollywood majors against paying minimum guarantees. Rights holders should be able to decide how and where to license their rights – individually or collectively.) authorship or co-authorship of a film. 145 For clarity a description of how copyright protection for authors of audiovisual works has evolved in Europeis provided here. In most cases. etc. However. as will be explained in a following section. While in civil law countries the authors’ rights system is used to grant the initial creators (director. these cases are rare and almost never happen in relation to European audiovisual works. etc. Spain. thus acknowledging the importance of contractual freedom. while moral rights stay with the creator (Austria and Italy). screen writers. to ease licensing processes. actors. Cit. 61 . Directive 93/83/EEC. This is the case because commercial users of audiovisual works usually have to negotiate with only one party which concentrates all the commercial exploitation rights of a film: the producer145. In most countries with a tradition of author’s rights.In some cases. This allows them to maximise revenues on behalf of the entire creative value chain (film directors. since the entry into force of the EC Copyright Directives (especially the Rental and Term Directive) the director of a film is designated the author of the audiovisual work in all EU countries. 146 Op. 144 We refer to music as the latter has been subject to intense regulatory scrutiny (examined in Chapter III) because of its complex licensing rules. Portugal. audiovisual producers can therefore decide whether – for example – to license on a territorial or an international basis. voluntary collective licensing may play a more important role in future digital audiovisual markets. the Commission staff working document on a Community Initiative on the Cross-Border Management of Copyright. 147 Commission Staff Working Document Study on a Community Initiative on the Cross-Border Collective Management of Copyright (7 July 2005). cable retransmission as promoted by the SATCAB Directive146). Reflecting on film business licensing practices. pages 23-24. producers are entitled to exploit the economic rights for films: in some countries the economic rights are initially vested in the producers. From individual to collective licensing? Finally.

titles that have not been sold in certain territories) can require laborious rights clearance which individual European rights holders often cannot afford.14 62 . This can be a disadvantage for European small and medium-sized rights holders who lack the bargaining power to negotiate favourable deals in such large transactions. VOD licensing across the EU continues to evolve. Both VOD platform operators’ needs for new licensing practices. the dominant position of commercial users vis-à-vis small and medium-sized rights holders prevents the latter from acting strategically and building up a catalogue of rights for later exploitation. the laborious rights clearing processes for orphan works and older titles could be shared. Small and medium-sized companies could collaborate and thereby offer VOD providers one-stop shops for buying rights catalogues. Furthermore. Focus 2010. VOD operators are asking for different licensing practices that fit the needs of their digital distribution business models. Factors influencing emerging licensing trends are the following: − Providers of VOD services stress the high transactions costs they face in order to identify and acquire VOD rights from the myriad of existing rights holders across the EU (and often refer to their experience in the licensing of musical works in this respect).VOD licensing practices may evolve further As VOD markets across Europe grow and more players enter digital distribution. − European rights holders also find it hard to retain rights for digital exploitation as they are often acquired by distributors and broadcasters who do not enter VOD exploitation until revenues from other windows are secured. World Film Market Trends p. could arguably be met by collective strategies. They could also act collectively to negotiate favourable terms of trades with other commercial users. most of them ask for greater transparency of rights catalogues or for the establishment of centralised rights databanks to ease the identification of rights holders and streamline rights clearing and remuneration processes148. the licensing requirements of rights holders are influenced by their size and market reach. Hollywood studios or global VOD operators. vintage titles. They could use economies of scale to reduce transaction costs in licensing. in order to potentially retain rights for digital distribution. and the requirements of European rights holders to increase their negotiating power. Again. 148 Apple already called for “central repositories for data about who owns what” in its contribution to the Online Commerce Round Table. so that European rights holders (primarily small and mediumsized companies) have different licensing requirements than large EU film companies. and metadata standards established to make identification and transactions easier. To counter inefficiencies. such as broadcasters. by acting together. 149 EAO. − Digital distribution of catalogue titles (older works. European films make up for 27% of the European theatrical admissions149. Therefore. Finally. Ericsson/DIGITALEUROPE called for an “online database” in their contributions to the European Commission’s public consultation on Content Online. they often prefer to buy rights catalogues rather than acquiring individual titles (except for big hits). Together. At the same time original rights holders want to ensure longterm access to VOD markets on good terms. − Scale is important for VOD platform operators who want to attract users with a sizable offer of titles.

This is again a complete collective-process approach. In addition. whereby EGEDA.com. A second example of a sustainable collective strategy exists in Spain. broadcasters and the producers’ association. UniversCine negotiates on behalf of its members to gain favourable deals for exploiting their works on other VOD platforms. a rights holder may prefer to coordinate the digital exploitation of a big hit individually rather than collectively. The VOD platform was launched in April 2007 and is called Filmotech. collective management of audiovisual rights for digital distribution In general. broadcasters or ISPs looking for films for their digital delivery services. It was developed by the collecting society representing film producers and television producers. However. The VOD offer of UniversCine on the open internet offers more than 1000 French titles. as manifested in the Danish inter-industry agreement between the national film funding institute. as may be required in certain cases. A third example is Universcine.As shown in the case study below. Additionally. This allows rights holders to retain the opportunity to opt out from collective action. with the low revenues derived from VOD European audiovisual companies need to negotiate more beneficial deals to access digital platforms. 63 . which gathers together approximately 50 independent French producers and distributors to compete against the large VOD offers by French telecommunication operators (such as Orange) and pay-TV channel Canal+. Some European rights holders have joined forces to act collectively in order to achieve better future terms of trade on the basis of offering a greater scope of content to platform operators. EGEDA is mandated to negotiate licensing contracts with telecommunications companies. There are also several individual companies and organisations that seek to facilitate innovative licensing solutions to enable easier identification and acquisition of VOD rights. They tend to be market driven and are developed from the bottom up. called Entidad de Gestión de Derechos de los Productores Audiovisuales (EGEDA). As will be seen in the legal section (see Chapter IV). Hollywood and large owners of rights catalogues are also likely to prefer individual licensing as they already possess the business structures to facilitate licensing processes. has used private copying royalties to develop a service that could become the best vehicle to monetise digital delivery to the benefit of film production. which essentially collects money from private copying in Spain. VOD rights are negotiated on an individual basis. One initiative is located in Denmark. where fifteen producers decided to join forces with a view to holding on to their video-on-demand rights and negotiating collectively with the telecom operators and the broadcasters in Denmark. For example. EGEDA received a mandate from the audiovisual producers in Spain to set up a VOD platform and serve consumers through a reliable and lawful system. Focus: Individual vs. there are several initiatives across the EU that take such a collective approach. this initiative is also linked to the commercial ability of Danish producers to retain their VOD rights.

If not already done. Netflix. It is one of approximately seven ‘digital content aggregators’ that currently exist next to Diva.Content Republic150 Content Republic is a new commercial outfit that aims to create a one-stop shop for international platforms. similar to the strategies of most major American distributors. it may approach producers or sales agents to acquire rights for these countries. Content is often bundled in packages of 20 to 30 audiovisual works.contentrepublic. 150 This case study is based on an interview with Content Republic and information provided on www. by acquiring digital rights from rights holders in different countries and by negotiating VOD deals selling bundles of audiovisual content. the company will digitise the audiovisual work and/or provide additional marketing before offering it to large platforms such as iTunes. Babelgum or others. Cinetic and others. thus offering them access to additional territories. For countries where the audiovisual work has not yet been rolled out. The firm – which has been set up by a music industry executive who believes that the film industry faces similar challenges as the music industry did five years ago – acquires VOD rights from national distributors who normally have the rights for distribution across all platforms.com 64 .

comparably high dissemination costs. One platform that wishes to remain anonymous was interested in acquiring multi-territory licences for multiple niche markets across Europe. Google (YouTube) and other international players. buy rights for individual territories and then cover significant promotion expenses in each market151. Consumer demand in local European content has. However.The prospect of international licensing Digital technologies may help European audiovisual rights holders to overcome bottlenecks that existed in physical distribution (scarcity of shelf space in retail. for a long time. VOD rights for international exploitation may be handled by different distributors or broadcasters in various territories. as this rights fragmentation requires considerable clearing and negotiation efforts which lead to high transaction costs. and as further demonstrated in the economic analysis (Chapter III). economies of scale and scope may exist between different technical version markets (theatrical. Nevertheless. the majority of European VOD platforms today focus on individual linguistic territories and therefore do not request international licences from rights holders. To add to this complexity. However. These include Fastweb.) in a given territory. consultations showed that some VOD providers expressed interest in acquiring international audiovisual licences in the future. etc. DVD. the current legal framework does not prevent any of these proposed international licensing deals (this will be further explored in Chapter IV). Otherwise there is a real danger that established global distribution platforms for digital content. VOD. authors. limited number of film reels for theatrical exploitation. public bodies) regarding the EC’s recent Reflection Document on creative content in the digital single market argue that the main obstacles to a single European digital market are more economic and cultural than 151 Therefore. European films or television programmes are usually made for local audiences and have the largest reception in their country of origin. Submissions by stakeholders from the audiovisual field (industry representatives. As already indicated. VOD services and rights holders that want to make available the same digital content version to multiple territories may find this to be a laborious undertaking. it is still debatable whether digital distribution will encourage further international circulation of European works. Microsoft (Xbox Live Marketplace). the complexity of licensing processes. Pay-TV. These inefficiencies need to be addressed if international licensing is to grow. and other national regulations and policies (these issues will be examined in depth in Chapter IV). The fragmentation of Europe’s audiovisual industry along national. cultural and linguistic borders. European distribution companies therefore mainly operate nationally. 65 .). free-TV etc. However. these examples remain rather isolated. those run by Apple (iTunes). It wants to circumvent negotiations with different partners by approaching sales agents directly for unexploited dubbed versions. disparities in VAT rules. shaped audiovisual licensing practices across the EU. As a result. which ultimately reflects the diverging tastes of a majority of end-consumers in different European territories. Obstacles to the establishment of international services include: legal uncertainties regarding the licensing of VOD rights. the same holds for rights for different language versions. to then exploit these versions across Europe. i. TheAuteurs and Deutsche Telekom152. but rarely exist between different territories. importantly with regard to this assignment. This could reduce Europe’s opportunity to benefit from VOD. 152 Expressed during interviews conducted as part of this assignment. poses the greatest challenge to the development of the internal market. for the moment. eventually decide not to buy licences for European catalogues. While they do not represent the overall trends in VOD rights licensing they indicate that there may be an opportunity for more international licensing in the future.e.

and with regard to the nature of the target audience. EDIMA also supports a light-touch approach to regulation and recognises that the territorial exercise of copyright may sometimes yield the best results for the industry:“…if a valid commercial reason does exist. In its contribution to the Round Table issues paper. 153 See for instance submissions by SAA.. EDIMA. This light-touch approach seems to be shared by Apple159.pdf (accessed February 2010). 10. essentially by proposing to adopt the country of origin principle in relation to certain forms of digital transmission. it is the lack of demand and therefore the lack of revenues from international licensing that is preventing cross-border services from developing (see economic analysis in Chapter III). To the authors of this study it therefore appears that when it comes to acquiring audiovisual rights.. BEUC believes that the EU should seek to facilitate multi-territory licensing of online content.eu/avpolicy/docs/other_actions/col_2009/assoc/beuc_en. EUROCINEMA.. BSAC. However BEUC is short on propositions to achieve this.] an instant EU-wide demand for much audiovisual content.europa. available on http://ec.”155. Both Apple and Google have expressed the wish to have the opportunity to buy both territorial as well as pan-European licences in their responses to the issues paper of the EC. 155 See BSAC submission on the Reflection Paper p. Canal+. 156 Google and Apple/iTunes statements to EC “issues paper” as part of the EC Round table on online commerce of DG Competition. such as monetization options which may exist in one Member State but not in others. for the moment. published as part of the EC Round Table on online commerce156. with the aim of enabling consumers across the EU to access content of their choice irrespective of their country of residence160. 160 See BEUC statement to the Reflection Paper.legal153. 158 EDIMA response to Round Table paper. As part of the consultation on the Reflection Paper their industry trade body. Requiring all content online services to be accessible from all Member States would therefore make it much more difficult for those offering content online to maximise their revenues by matching services to audiences. recognises that “licences must reflect the need of the given business model and licensing terms must be commercial and market driven”157. 4. digital media companies are primarily concerned with ways to ease existing licensing and remuneration processes. will be further examined in Chapter IV. However their comments primarily relate to music content and they did not submit comments on the Reflection Paper. This perspective is not shared by the Consumers Association BEUC which encourages the European Commission to take further action to enable the development of EU-wide licensing (not only in music but also in audiovisual). According to the Association of Commercial Television (ACT) “transfrontier distribution of content does take place – but only where there is a market for it”154. FERA. 154 See ACT submission on the Reflection Paper p.. The EBU. it may be worth not undermining that opportunity”158.eu/competition/consultations/2008_online_commerce/edima_contribution. http://ec. Indeed it seems that. representing essentially public broadcasters. Putting into question copyright territoriality is not their main concern and international licensing should – if at all – develop based on market needs. 66 . The British Screen Advisory Council (BSAC) does not believe “that there is [.pdf 159 Apple indicated during an interview that it did not ask for government intervention in audiovisual rights licensing for the moment. 2009. This proposal.europa. Demand often needs to be created and encouraged over time. as well as how and whether international licensing and the development of a digital single market could and should be further promoted by policy making. is the only organisation to make concrete proposals to ease the licensing process. 157 See EDIMA submission on the Reflection Paper p. UK Film Council. 2. ACT.

Furthermore. it appears that the following VOD licensing trends currently characterise the European audiovisual sector: − Territorial licensing prevails but international licensing may be requested by some – if few – VOD platforms in the future − Rights are so far primarily sold on a non-exclusive basis (for older titles or titles that have not yet been exploited on VOD) or bundled with other exclusive distribution rights − Short licensing terms (two to three years) prevail to enable rights holders to review their exploitation strategy in the future − Both VOD platforms as well as original European rights holders would potentially benefit from more efficient audiovisual rights licensing practices – nationally and internationally − Individual as well as collective solutions to facilitate easier rights identification and acquisition across borders are already emerging in the market. without any territorial restrictions for consumers. The company ideally wishes to make VOD titles available at a global level. finance and sales company Celluloid Dreams.com/ 67 . In this context. Their marketing is based on the mechanisms of social community websites such as Facebook and Twitter.com. The service involves virtual communities that allow users to share impressions. For the moment. and based on a 50/50 split of revenues. Their rights acquisition strategy concentrates on purchasing territories and niche films that are not exploited on VOD.theauteurs. This platform relies on a partnership between a software company in Palo Alto and the French independent production. They 161 In this context. The results of this development regarding the competitive position of different stakeholders remains to be seen. Case Study on a European VOD platform: TheAuteurs162 An example of an original European VOD platform that targets multiple territories is TheAuteurs. all the contracts are concluded on a non-exclusive basis. The industry is adapting its business practices to new market requirements. The ability of the sector to flexibly and efficiently answer different licensing requirements is therefore important if it is to extract value from emerging digital content markets. limited to one year running time. bridging the gap between EU rights holders and digital technology experts. rights management becomes increasingly important to enable the sector to successfully exploit creative content161. 162 Case study based on an interview held in April 2009 and the website http://www.Conclusions There are many signs that the audiovisual industry is undergoing important changes due to the digital shift. to comment on films and to recommend them to friends in order to create a network of users and drive the platform. the audiovisual sector may be a model for how other knowledge-intensive markets in Europe’s economy may evolve in the future.

which gathers UniversCiné (Belgium and France). 22 VOD platforms and 2 DCD projects received a total amount of approximately € 18 million in co-financing. Only some platforms such as TheAuteurs. Australia and New Zealand. The scheme has in the past primarily benefited platforms that distribute content nationally. MEDIA sees an opportunity to further promote the circulation of EU works by helping rights holders to make smart use of digital distribution. The main priority of MEDIA is to support distribution related activities – slightly more than half of the programme’s funds are allocated to this domain.com’. create a common catalogue and promote technical standardisation. As most projects are still in an early stage of development it is too early to evaluate whether MEDIA’s selection and support will have a real impact on each project’s ability to expand beyond its home country. Good!Movies (Germany). However. Scandinavia. UniversCine and FIDD/Movieurope have recently started attempts to make available films across Europe. It combines € 755 million of funds for Europe’s film industry over the years 2007 – 2013. the box-office share of non-national films across the EU has remained relatively low despite this effort (approximately 8%).either buy rights directly from distributors on a territory-by-territory basis. The separate MEDIA scheme for Pilot Projects (€ 2 million annual funding and up to 50% co-financing) has furthermore funded some projects (Pro2film and Glitner in particular) that aimed to foster 163 Decision No 1718/2006/EC of the European Parliament and of the Council of 15 November 2006 concerning the implementation of a programme of support for the European audiovisual sector (MEDIA 2007) 68 .000 in March 2010. tries to address the challenge of networking existing initiatives. MEDIA has already started to support collaboration between different platforms to address the challenge of a fragmented VOD market. The constantly-changing catalogue comprises about 500 films at a time. the subscribed membership has reached 58. while the latter requires them to finance the film’s subtitling. MEDIA 2007 includes a scheme that supports business-toconsumer VOD platforms as well as Digital Cinema Distribution (DCD) projects. Blind Spot Pictures (Finland) and Bord Cadre Films (Switzerland). For reasons outlined throughout this study.000 in March 2009 and more than 220. In May 2010. increase the circulation of EU works and strengthen the sector’s competitiveness163. under its new international brand ‘Mubi. The project wants to pool costs. the company announced a partnership with Sony to put its catalogue on Sony PlayStations in Europe. Case study: How the MEDIA Programme helps European film companies to adapt to the digital shift The most important EU scheme in support of the audiovisual sector is MEDIA 2007 which aims to enhance European cultural diversity. Volta (Ireland). or from sales companies or rights holders directly for unsold territories. Since the launch of the platform in November 2008. The recently established EuroVOD network. Its aim has been to promote the availability of European content on national VOD platforms rather than to get the national VOD platforms to work together to address international distribution. The former allows them to acquire films in relevant language versions. Filmin (Spain). Over the last three years.

collaboration in the industry164. The programme’s new call for proposals (2010) may further fund similar projects (Distribution and Junction Media Portal). Overall, one should note that the total level of funding made available for VOD, DCD and Pilot Projects is small in relation to the challenge at stake (on average € 6 million for VOD and DCD and € 2 million for Pilot Projects) – especially compared to MEDIA’s total budget devoted to supporting international distribution (on average approximately € 60 million per year). Some recommendations concerning MEDIA’s focus are included in the conclusions.

164 See http://ec.europa.eu/information_society/media/newtech/pilot/list/index_en.htm for a complete list of supported projects

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CHAPTER III DEVELOPMENT OF DIGITAL TRADE OF AUDIOVISUAL WORKS IN THE EUROPEAN UNION: ECONOMIC ANALYSIS
The digital shift changes the dynamics of audiovisual content distribution, unsettles established market structures by allowing new players to enter the market, and potentially offers the European audiovisual industry the opportunity to access new markets. As was the case with satellite television, some believe that the emergence of VOD may contribute to unifying EU audiovisual content markets. This chapter examines whether market developments reflect this promise. The VOD market is still in its infancy and as such is somewhat unstable, making it difficult to predict its future development. Many of the underlying business models of new services are not yet in sync with the economic fundamentals of the audiovisual sector described in Chapter II. The aim of Chapter III is therefore to describe how VOD services are emerging across Europe and how high the level of demand for these services is. It will illustrate that the main obstacles preventing the full establishment of a European market for audiovisual content are above all economic and cultural. Chapter III is structured around two questions:
− First, does available market data reflect the previously outlined promises of digital distribution in

terms of VOD revenues and cross-border circulation of European works? (Section 3.1)
− Second, how would local as well as European VOD markets develop depending on a set of future

scenarios (technological, economic and regulatory)? (Section 3.2)

3.1 Economic assessment of the potential development of digital trade of audiovisual works in the EU
If digital distribution is to really unlock the potential of the European internal market for audiovisual works, the value of the VOD market itself, as well as cross-border circulation of titles, needs to increase. Section 3.1 will:
− systematically and quantitatively analyse the current state of the VOD market in the EU − review the distribution and circulation of audiovisual works across the Union in order to assess the

potential development of cross-border trade, bearing in mind the distinction between availability of VOD services and actual demand for these services

3.1.1 Analysing the emergence of VOD
The EU audiovisual market is not yet unified, a fact demonstrated by the economic structure of the sector and by the legislations and policies that shape audiovisual markets, and VOD is no exception, with markets differing significantly from one country to another.

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National VOD markets and their developments are here described from both the supply and demand sides, and two typologies of VOD markets (according to their structure and their performance) are suggested. These typologies are important for this report because they provide foundations to further project the development of VOD over the next five to ten years (see Section 3.2).

3.1.1.1 Supply Collected data describes an accurate picture of the supply side of VOD and related technical infrastructure roll-out in Europe. The proliferation of digital technology and equipment across the EU is briefly described, followed by an analysis of the relationship between the development of VOD offers and other national factors, including number of inhabitants per country and digital technology penetration per country. Finally, availability concerning the type of content (archive material, feature film, etc.) in relation to the service operators (internet, IPTV, cable, etc.) are briefly examined. An uneven level of digital equipment across the EU Roll-out and take up of digital infrastructure and technology is an important condition for the development of VOD, but on its own is not sufficient. A market that is too small (i.e. too few consumers are technically equipped to use VOD services) is not profitable enough to attract VOD service providers. The absence of a lively supply side, in turn, prevents consumers from trying out VOD services. However, if a critical mass of consumers can technically access VOD services, VOD service providers may be encouraged to enter the market which in turn raises consumers’ interest for VOD services. One of the few common characteristics of Europe’s audiovisual industries is the high level of television sets, at over 95% of all households in every country165 . On the other hand, there are significant disparities concerning the number of channels available in each country166. The size of the country has a big influence on this factor: the largest countries have the highest number of channels, while the smallest countries have the fewest channels available. However, the language spoken in a given country (and culture more generally) also plays an important role in this context. For example, there are comparatively more channels available in Belgium due to the fact that several linguistic communities exist in the country167. Moreover, Ireland tends to benefit from channels located in the United Kingdom, illustrating that a smaller country can receive a high number of television channels if it shares a common language with another country168. Significant differences remain concerning the penetration of digital television169, which plays an important role in the success of IPTV as a delivery platform for VOD. A small number of countries have an equipment rate of over 70%: France, Spain, the United Kingdom and Finland. A second group includes Malta, Austria, Ireland and Sweden. An intermediate group includes the Netherlands,
165 See Appendices for detailed data. 166 See Appendices for detailed data. 167 In the same way there are several linguistic communities in Spain, which may have a positive impact on the number of TV channels. 168 According to data from the European Audiovisual Observatory more than 90% of channels available in Ireland are not located in the country itself. 169 See Appendices for detailed data.

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Germany, Denmark and Italy. A further group that has less than 30% of digital television penetration rate includes Portugal, Poland, Latvia, Belgium, Romania and the Czech Republic. The lowest rate is reached in remaining Central and Eastern European countries, from Hungary to Lithuania. The differences are less significant when it comes to personal computers170. Bulgaria has a penetration rate of only 24% but all other countries are far above 30%. Western and Northern European countries are in advance with the notable exceptions of Estonia and Slovenia. Penetration of broadband internet in 2009 reached an average of 56% (of households) at the European level171 to be compared with 63.5% in the US172. Northern and Western European countries perform better than the US, from Germany (65%) to Sweden (80%) and, in decreasing order, the Netherlands, Denmark, Finland, Sweden, Luxembourg, United Kingdom173. The next group of countries has penetration rates ranging from 49% (Czech Republic) to 63% (Malta and Belgium), which includes Estonia, Austria, France, Slovenia, Ireland, Poland, Spain, Lithuania, Latvia. Remaining countries are Eastern and Southern European countries, including, again in decreasing order, Cyprus (47%), Portugal, Slovak Republic, Italy, Greece, Bulgaria, and Romania (24%). Finally, regarding mobile communications, in 2008 more than 95% of the population in every EU country was covered, with an average of 99.4% at EU level to be compared with 99.8% in the US174. However, there are greater disparities as far as mobile broadband subscription (GSM) is concerned175. At European level 21.5% of all inhabitants subscribed to mobile broadband, compared to 26.5% in the US. The top group of countries outranks the US, from the United Kingdom (33.9%) to Luxembourg (82.6%), including Sweden, Spain, Portugal, Austria and Italy. Other countries above the European level include in decreasing order Cyprus (25.6%), the Netherlands, Finland, France, Slovenia and Germany (21.8%). Remaining countries include Denmark (18.9%), Estonia, Malta, Slovak Republic, Greece, Ireland, Latvia, Poland, Lithuania, Romania, Belgium, Hungary, Czech Republic and Bulgaria (2.4%). Finally 10.2% of the EU population were subscribers of 3G technology at the end of 2006, and the percentage of subscribers is positively correlated with the percentage for GSM176. Overall, Northern and Western European countries are more advanced in terms of digital equipment take up, with Central and Eastern European countries lagging behind. As will be illustrated, this has a crucial influence on the current shape of VOD markets in these countries.

Overall increase of the numbers of VOD service providers and services VOD service providers

170 See Appendices for detailed data. 171 EUROSTAT (2009). Data in Focus: Internet usage in 2009 – Households and individuals, p.1 172 Digital Nation: 21st Century America's Progress Toward Universal Broadband Internet Access, An NTIA research Preview, U.S. Department of Commerce, February 2010, 173 See Appendices for detailed data. 174 Source: IDATE. 175 Source: IDATE. 176 IDATE, Broadband Coverage in Europe. Final Report 2007 Survey, Data as of 31 December 2006, DG Infso, October 2007.

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The significant difference in number of VOD services according to IFTA (196) against the figure given by the EAO (696) requires explanation. Another option was to compare 2006 data provided by the NPA with December 2008 data provided by the European Audiovisual Observatory. notably pure catch-up television services and paid services offering access on demand to live or time-shifted transmissions of sports events. the countries that have the highest penetration of digital television also have the greatest number of providers. Market entrants trying to sell telecommunications and internet services and to acquire subscribers are testing new technical solutions and business models. by telecommunications. The markets with the greatest number of VOD service providers also have the highest penetration of broadband internet. These numbers are. Médias. Emerging VOD markets are generally dominated by firms that own or manage physical infrastructures.The total number of VOD service providers in every EU country from 2006 to 2009 increased from 132 to 188177. However the EAO changed its methodology for the 2008 data. Economies of scale and scope may well later lead to a phase of market consolidation as was for example the case in the US cable industry178. to 196 in 2009 (IFTA). Similarly. For example the number of VOD services increased from 132 in 2006 (NPA). In fact IFTA data was found to be more consistent with data from previous years.g. corresponding to an increase of around 400% in two years. Switzerland. France) or a high income per capita (e. without the catch-up services). Countries with the greatest numbers of players either have a large population (e. This should be compared with the total number of services according to the EAO (643 in 2008 for EU countries). to 172 at the end of 2007 (NPA. however. Evolution of the number of VoD service providers 2006 . The same problem exists for the number of VOD services. i.e. IFTA. 178 Mariet. When all non-EU countries are removed the EAO counts 643 VOD services.g. 177 Sources: NPA for 2006 and IFTA for 2009. Economica 73 . There are substantial differences between countries in terms of the number of VOD providers.2009 23 20 20 24 18 16 13 9 4 1 1 1 2 2 2 22 2 5 3 3 6 2 6 3 6 7 5 6 10 6 10 9 11 7 10 10 6 16 13 2006 2009 Sources: NPA. Marketing et Publicité. including non-EU countries (e. The EAO report also surveys more countries. Russia). the Netherlands).111). La Télévision Américaine.g. The number of VOD service providers also reflects the proliferation of digital technologies in a Member State. which “leads to the double counting of some services available in the same language version in several countries” (EAO. The nature of VOD service providers differs according to a country’s profile. François (1990). p. 2009. with the exceptions of Spain (medium penetration but great number of providers) and Luxembourg (high penetration but low number of providers). This rapid expansion shows that the VOD market is still in its development stage. Mainly it is because the EAO includes more kinds of services. making it also not comparable with NPA data. not directly comparable because of differing methodologies used by NPA and IFTA. Finally the EAO report describes the number of services available in each country.

source of income. Study for the European Commission. broadcasters’ VOD services are more likely to offer catch-up and live programmes as well as sport and news.g.Others Source: IFTA Crucially.Operators . rather than core. VoD service providers in 2009 1 4 1 4 1 4 1 1 3 2 1 5 1 3 2 2 2 3 5 4 5 6 1 3 5 2 2 3 3 6 3 3 7 4 8 5 2 2 8 6 5 3 9 6 5 15 1 2 2 4 4 . This is the case in the Czech Republic (e. For broadcasters it adds new audiences for content which they already own the rights to. 180 Study on the application of measures concerning the promotion of the distribution and production of European works in audiovisual media services. VOD revenues so far remain marginal and are seen as a supplemental.g. the commercial television channel RTL Klub) or Austria (e. Furthermore. In intermediate markets the broadcasters play a greater role.Internet content . On the other hand. It corresponds to what IFTA names ‘Internet content aggregators’ (or providers). rights holders are waiting for the VOD market to provide them with reliable and more substantial additional revenues before becoming really active in the market. This shows that the market is still in its infancy: on the one hand new entrants have no access to content. such as in the Netherlands. such as in Hungary (e. however. For ISPs VOD enlarges the set of services they can offer to their customers. 179 The notion of ‘pure VOD players’ here includes also equipment manufacturers (e. In some cases pure VOD players can even be the most numerous in the market. different kinds of service providers tend to provide different kinds of content. the international cable operator Liberty Global) or Bulgaria (e. the public-service German television channel ZDF). In those cases the broadcasters rely on their existing reputation and skills in exploiting audiovisual content to provide their own VOD services. Glowria – now Video Futur).g.cable and satellite operators.g. May 2009 181 Archives and feature films in turn represent a significant share of consumption. A recent study180 shows that pure VOD players are more likely to offer archive content and feature films. since it is hard for them to access more recent titles181. more pure VOD players179 are present.g. In the most developed markets.Broadcasters . such as in France (e.g. the telecommunications company Vestitel BG). 74 . on the other hand broadcasters are recycling their rights. Apple).

Catalogue of titles by VOD service: a few examples Spanish Filmotech. 17% are magazine titles and 3% are recordings of performing arts events. This compared with 748 films one year before and indicates a growth of 18. It has not launched its services on a pan-European scale so far. there has been an overall increase in the number of VOD services183. Interestingly. Today it offers around 1. and over 5. Arte makes available around 400 titles on several closed-circuit VOD platforms (Virgin Media.com offered 215 Spanish feature films in 2007. Some 1. 83% of its catalogue is made up of French works. Amazon. The broadcaster Arte has the ambition to develop a European VOD offer (although somewhat limited to German/French titles). the level of income per capita.e.com also offers a VOD service including thousands of titles. 54% of these are documentaries.500 films and series from independent producers on a platform that operates internationally. its catalogue has steadily grown and includes more and more European and Latino-American content. The factors in favour of a higher number of VOD services are the same: the population of the country.000 titles on offer available for the US (sale and rent). the rest are adult content. offers more than 4. 26% are films. The service is offered in the US only. half of which are feature films. offering today over 40. the availability of French films increased at a higher rate than that of US films182. the biggest online platform for music. Alice). Study for the CNC. series and children programmes.000 television episodes. and the level of development of digital technological infrastructure. launched in 2007. Apple’s i-Tunes. a market which it considers to be crucial for the development of VOD in the coming years. 182 See : NPA. i-Tunes. This service has been launched in 2006 with 350 titles in France.190 films were accessible in February 2010 in Spain. CanalPlay (a service provided by the French pay television channel Canal Plus) offers 6.000 movies on demand. Edition 2010 183 As confirmed by the EAO study.000 titles. i. Numericable. There are around 43.700 titles on its French online service on the open internet (including 680 feature films and 980 documentaries).2% for the selected platforms. The numbers may differ slightly since some VOD service providers may provide two or more different services. Since its creation. launched its digital movie platform in 2005. The offer includes essentially back catalogue titles – DRM encoded. 75 . Imineo. Enjeux strategiques de marche VOD. VOD services The evolution of the number of VOD services reflects that of the number of VOD service providers. The international platform Jaman. The German VOD website (launched early 2008) currently offers 200 programmes in German. and some 670 in other countries. Recent research commissioned by the CNC analysing the VOD offer of eight selected platforms in France showed that these platforms together made available 4800 feature films.

Internet . 76 .1.2009 18 16 10 4 1 2 2 2 0 2 2 0 5 3 56 2 6 4 7 5 7 7 11 10 10 6 13 11 10 10 7 6 14 27 23 20 19 18 2006 2009 Sources: NPA. wireless and satellite for VOD. However.Cable . In most countries. 184 There can be more delivery platforms than services because some services are available through various delivery platforms. only a limited number of VOD service providers rely on TNT. This is contrasted with an increasing importance of SVOD in revenues (see Section 3. and as will be illustrated further below. Conversely. See Appendices for additional data on the spreading of content among various business models. IFTA. 185 There can be more business models than services because some services rely on various business models. this is far from being the only possible model – Free-on-Demand is also present. On the other hand. VOD services on the internet do not create as much revenue as services delivered via IPTV. One reason for this may be that market entrance on the internet is far easier than on any other platform. Rental is the business model that is chosen by most VOD services. as well as Subscription VOD to a lesser extent. the internet is the VOD delivery platform that is used by the greatest number of VOD service providers.Evolution of the number of VoD services 2006 .Satellite . This is particularly the case in countries with the most VOD service providers in general184. VoD service providers in 2009 3 6 9 1 4 6 3 1 1 3 3 1 1 5 2 1 5 3 2 1 2 2 2 1 2 2 2 5 4 2 1 2 3 3 5 1 3 3 9 6 3 5 5 5 14 7 3 11 9 15 4 8 17 19 21 .Wireless Source: IFTA The business models that are used by these players and more precisely the kind of services they offer are also key factors185.IPTV .2).TNT .1. with these services resembling dematerialised video stores.

national VOD markets are at different stages of VOD deployment. − The second actors to enter are broadcasters.g. On the other hand.VoD services by business model 6 5 7 12 4 9 8 5 3 3 2 2 3 1 2 1 3 3 1 9 7 2 6 8 10 8 2 2 2 5 5 5 3 11 5 6 4 1 11 2 1 10 22 21 11 3 3 1 2 1 4 1 2 2 3 1 3 4 1 3 en g an y Au st ria Ir e la nd Fin lan d Cz ec h Lu x Rental Pay-per-download Pay-per-view Subscription VoD Un it e d Free-on-Demand Source: IFTA (data is for 2009) Summary Findings In conclusion. on the one hand Rental & EST 186 The data however seem to be focused on television and neglect the internet.1. 3. or others) to emerge.1. unlike broadcasters and telecommunications operators. possibly due to difficulties in collecting data. they benefit from economies of scale since they already own rights for the content they broadcast. Apple with iTunes). and most of all on the power of their brand.e.2 Demand Given that the offer of VOD services across the European Union has significantly increased. CNC. cable and satellite operators. UK Film Council) show that there may not be such a significant difference in terms of VOD turnover when one includes revenues derived from the internet. data provided by other sources (including EAO. Moreover. The analysis relies on data provided by Screen Digest186. The following dynamics can be observed: − The first actors to enter VOD markets are those that own or manage physical distribution infrastructure. This data draws a distinction between. telecommunication. i. Section 3. − The market needs to be more developed for new actors (either pure VOD players or equipment manufacturers. Broadcasters export their brands’ reputation to digital markets. They build on their experience concerning publishing and marketing content.8M€) in 77 Ne th er lan d De nm Kin gd o Sw ed Ge rm Re pu Bu l Hu n Po em Po Be Fr an ce lgi um ga ry ar k m rtu ga bo ur Sp ain bl ic ga r ia lan d Ita ly s l .1.2 examines whether this is also the case for levels of consumption. In France the share of IPTV among all pay VOD transactions increased from 85.1. The issue for these new players is that they usually have to invest in creating a local brand. Only when the market has reached a critical size does it become attractive for these actors to make the investments needed to enter the market.2% (23. which may include more entrants in the audiovisual industry (e.

In the UK the online VOD market represented in 2008 6. monthly fees for subscription on-demand services.and on the other hand SVOD187.8% of all VOD revenues (source: EAO).9 million in 2008 − nVOD and VOD revenues increased by 30. however. i. 2009.4 million in 2007 to 13. There can. have similar sizes at EU level. In spite of an overall increase of VOD markets. and SVOD on the other hand.7M€) in 2008 (Source: CNC). be significant differences between countries in their relative importance188.4% in the UK 2007 to 90. Rental & EST. Rental & EST on the one hand. and SVOD turnovers by country. The trends in this graph are confirmed and reinforced by data provided by other sources. Please note that this definition of SVOD is relevant only for data provided by Screen Digest. The growing importance of VOD The data shows a strong increase of VOD in the EU since its emergence around 2000. VOD still remains marginal in terms of generated revenues.7% (46. In 2008 the EU VOD market represented a total turnover of € 644 million.e.cit.2M£. to be compared with 114M£ for television-based VOD and nVOD (source: UK Film Council – this concerns only films and not all audiovisual content).8% in France – according to the CNC the number of transactions increased from 8.. Op. 187 SVOD includes what Screen Digest names as “other on-demand”. In the US VOD on the internet represented 11. 188 See Appendices for a comparison of nVOD. 189 EAO. notably data provided by the EAO189 shows that from 2007 to 2008: − VOD’s turnover increased by 33% in the US − Household expenditure on VOD increased by 82. 78 . This is done by analysing the development of VOD turnover in different Member States. PVR monthly access fees and on-demand season ticket subscriptions. and had increased by 250% in two years. all on-demand monthly access fees. Video on demand and catch-up television in Europe.

− Pay-per-view and VOD revenues increased by 7. Video on demand and catch-up television in Europe.6% of the video revenues in Spain.7% of household expenditure on audiovisual programmes − nVOD and VOD represented 6. i. 3.e. as shown by the following data provided by Screen Digest.7% of video’s turnover in the US − VOD represented 3. VOD represented only 1% of overall film audience in the UK in 2008.cit. 2009.6% of the revenues of the audiovisual industry − VOD represented 0. which shows that in 2008: − VOD represented 8.55% of television revenues in the EU in 2008191 This still limited importance of VOD in turnover is also reflected in terms of audience share. 191 Study on the application of measures concerning the promotion of the distribution and production of European works in audiovisual media services. 190 EAO. notably by the EAO190. Study for the European Commission. This again confirms that the VOD market is still in its infancy. As shown in the next graph. 0. Op.2% of the film industry revenues − Pay-per-view and VOD represented 33.1% in Spain VOD revenues remain marginal Despite this growth in turnover in the VOD markets.7% of the film industry revenues derived from video in the UK.e. Source: Screen Digest The fact that VOD remains marginal in terms of total turnover is also confirmed by data provided by other sources. Op. 79 . May 2009. i. VOD remains very small when compared to audiovisual markets in general.cit. 3.5% of all video expenditures in Italy − VOD represented less than 0.e. i.6% of household expenditure on video in France.

68% F Sources: film distributors 192 See appendices for a detailed methodology concerning the collection of this data 193 These findings exclude video since no data on video could be found. Distribution of turnover between versions by film 3.41% A 2.90% 98.75% 26.07% 82. confirms the relevance of the macro-data192.88% C 0.63% D 0.67% B 0.47% 95.19% 72.71% 97.05% 17. VOD represented less than 3% of turnover resulting from their exploitation in France193. Data on our sample of films.06% E 1.33% 77. 80 . Thus for films A to F.88% 22. collected from audiovisual distributors to analyse each work’s turnover in different technical and geographical version markets.32% TV Box Office VOD 0.Distribution of film audience in the UK in 2008 Cinema 3% DVD/video 22% VoD 1% Television 74% Source: UK Film Council.

The typologies described here have informed the projections made later in this report regarding the development of VOD in the next five to ten years (see Section 3.1. Our statistical approach provides a distinction between two groups of countries based on: − the number of broadcasters that provide VOD services and. the nature of VOD services and VOD service providers197. Distribution of film H's turnover between versions by country (€) 125000 44000 49000 253000 104000 425000 117000 133000 TV DVD Box Office VOD 51000 5000 Sweden 2000 France 23 Denmark Sources: film distributors 3. The first typology classifies countries according to their structure.1. Clustering is used in various fields. 197 See the detailed list of variables in the Appendices. e. 194 See Appendices. to allow comparison between different VOD markets and an analysis of the basis for similarities and differences195. The data illustrates that the VOD market is far from being sufficient to recoup production or even distribution costs194. and the performance of the VOD markets on the other.Similar results can be found for the exploitation of film H in three different EU countries (France.1.g. and reflect the structure of the VOD markets on the one hand.3 two typologies of national VOD markets are proposed.1. 81 . The typologies also provide a description of the level of development reached by each market. including data mining. 195 Here the number of broadcasters (among VOD service providers) is found to be significantly different in the first typology according to the group of countries while a ‘human’ observation could not provide such a result.2).3 A typology of EU VOD markets In Section 3. The aim of this statistical method is to find systematic similarities between different elements of a system. Denmark. They were developed using clustering methods196. These typologies rely on the current state of VOD markets. 196 See a description of the methodology and the detailed list of variables in the Appendices. and Sweden).

− the number of rental services among all VOD services The manner in which the audiovisual markets are shaped influences the way the VOD markets are shaped. Unlike the previous typology. Table: A typology of EU VOD markets according to their structure199 Group Belgium Countries France Spain Italy United Kingdom Austria Germany Sweden Characteristics Significantly higher number of broadcasters among VOD service providers. 198 This is confirmed by an analysis of audiovisual performance and the VOD market against audiovisual structure and the VOD market. see Appendices for the corresponding Spearman matrix. there is little correlation between VOD performance and the structure or performance of audiovisual markets.g. so that countries that have similar audiovisual market structures and performances also tend to have VOD market structures in common198. and a high number of rental services among VOD services Significantly lower number of broadcasters among VOD service providers. One reason for this may be that these markets are still emerging and are relatively unstable. according to the business model or the delivery platform200. and a low number of rental services among VOD services 1 Bulgaria Ireland Portugal Czech Republic Luxembourg 2 Hungary Poland The second typology distinguishes between two groups of countries according to their performance. making it difficult to predict the impacts of these early trends on the future organisation of a more consolidated audiovisual market. e. see Appendices for the corresponding Spearman matrixAppendices 82 . 200 See the detailed list of variables in the Appendices. the turnover and Average Revenue Per User (ARPU). Those added countries are italicised. This means that countries that have similar audiovisual market structures and performances do not necessarily tend to have similar VOD market performances201. 201 This is confirmed by an analysis of audiovisual performance and the VOD market against audiovisual structure and the VOD market. Instead some countries were added to either one of the groups by looking at existing incomplete data on the number of broadcasters and of rental services. 199 Due to a lack of data we were not able to use the clustering method for all EU countries.

More generally while such data might have provided information on a potential and unsatisfied demand for AV works from other EU countries. which – so far – has not fully emerged. Those added countries are italicised.1.Table: A typology of EU VOD markets according to their performance202 Group 1 France United Kingdom Austria Denmark Germany Ireland Poland Slovakia Countries Italy Spain Characteristics Significantly higher turnover for distribution through satellite. significantly lower ARPU for SVOD Romania Sweden 3. e. i. its technological infrastructure and – importantly – the linguistic and cultural preferences of its audience (see Section 2. Promoting such circulation is one of the key objectives of European audiovisual policy.e. are further analysed. The industry’s infrastructure in terms of production and distribution is a reflection of each market’s size.2 examines the level of cross-border circulation of European works in the internal market. Section 3. In Europe. theatrical distribution. local films are essentially made for a local audience.2 will look at the circulation of audiovisual works in the EU. DVD). 83 .1 The circulation of audiovisual works in theatres and on video Every national audiovisual market in the EU has grown depending on a number of factors inherent to each market.1.1. The tender specifications for the present report consequently ask for a projection of how the internal market for digital audiovisual content will develop according to a number of given technical and regulatory scenarios. supported by local or national stakeholders and public funds. on peer-to-peer networks.2 The circulation of audiovisual works in the EU and potential implications for the digital circulation of audiovisual works Section 3. Subsequently. then with a focus on VOD203. significantly higher ARPU for SVOD 2 Belgium Estonia Greece Luxembourg Portugal Slovenia Czech Republic Finland Hungary Netherlands Significantly lower turnover for distribution through satellite.2. It also believes that more international licensing can accelerate this development. Instead some countries were added to either one of the groups by looking at existing incomplete data on the number of broadcasters and of rental services. This is mainly due to a lack of data.e.g. The European Commission assumes that digital distribution can enable the development of the internal market for audiovisual works. and the way these films are financed does not always favour their exploitation at the international level. it is hard to estimate what proportion of such a potential demand would be ready to consume content through more legal means. 3. firstly in terms of the development of offline markets (i. 203 It was not possible to analyse the circulation of EU audiovisual works which takes place without the authorisation of their rights holders. two issues that would be directly impacted by increased international licensing.1. local distribution and reduction of distribution costs. its regulation. This is because most EU films are publicly funded.1). which are primarily 202 Due to a lack of data it was not possible to use the clustering method for all EU countries.

the type of film (i. Denmark or co-productions involving several countries of origin)205. Some countries resemble each other more than others in terms of their ability to access international audiovisual markets. For the former.e.29% 76. Distribution of admissions in theatres between (co)producing and other EU countries by type of film 23. This is illustrated by analysing the circulation patterns across the EU of the previously-mentioned sample of films. it is possible to draw a distinction between films according to. the country of origin (i. Are there differences between the films as far as consumption in other EU countries is concerned? The most obvious result is that EU films succeed above all in their country of origin. compared to those considered to be either blockbusters or festival films.24% 39. on the other hand. EAO 204 A distinction is made in this subsection between (co-)producing countries and other countries. France.71% Blockbuster & Festival Blockbuster (Co-)producing countries Other countries Festival Source: film distributors. 205 Danish films here are in fact always co-productions between Denmark and Sweden. The circulation of films in theatres – individual data The analysis starts with the sample of EU films produced between 2004 and 2006 and looks at how films circulate in other EU countries204.interested in growing domestic markets (see Chapters II and IV). The UK.48% 24.e. 84 . Spain. festival or both) and. admissions in the country of origin represent around 60% of all admissions in the EU on average (against around 77% for blockbusters and 76% for festival films). It was unfortunately impossible to get consistent data on the consumption in other markets (e.g. This has implications for the circulation of works across borders. Furthermore.76% 60. On average the country of origin represents more than 70% of all admissions. Films that are classified as both blockbusters and festival films are more likely to be consumed outside their country (or countries) of origin. blockbuster. the US market).52% 75. Hungary. on the one hand.

This. and for which actor of the value chain. as well as the countries of origin most likely to produce internationally successful films. Films produced by Sweden are generally co-productions between Sweden and Denmark. France and Switzerland) circulate more than films made in Spain or co-productions between Denmark and Sweden. or co-productions between several EU countries (e. Hungarian films are the least consumed outside their country of origin. which showed that EU films that were awarded at one of the major film festivals were often coproductions and were – also because of this award – more likely to be screened and seen all across the EU. exploitation beyond national boundaries remains limited.The analysis by country shows significant differences according to the country of origin. Overall. festival films are more likely to be consumed outside of their country of origin than local blockbusters. 206 ‘Co-productions’ stands for co-productions between more than one EU country (except for co-productions between Denmark and Sweden). the UK. First. however. 85 . Films made in France. whatever the group of countries. previous results are confirmed regarding the kinds of films most likely to succeed in international markets (blockbusters and festival films). the country (or countries) of origin represent more than half of admissions207.g. Furthermore. moreover. is confirmed by a study made by the FIAD. Spanish and French producers. so that. For example one film in this category was produced through a collaboration between German. EAO206 A final analysis crosses both views and brings more refined results. France and Italy. and such an analysis falls outside of the scope of the current assignment. in the UK. 207 There is a lack of data on whether such outside exploitation is profitable. on average. Source: film distributors.

was considered. while every other EU country produced fewer than 50 films in 2007. 210 Source: European Audiovisual Observatory. See Appendices for detailed data. Germany. Italy and the UK produce significantly more films than any other European country.47%. 208 Group 1 includes France. 86 .Source: film distributors. European (which excludes national) and other. This distinction is kept when possible throughout the rest of the analysis of the circulation of audiovisual works. 211 See Appendices for detailed data. The first finding is that more populated countries tend to have higher production levels or output. and the resulting market shares of films according to their origin. Group 2 includes Spain and co-productions between Denmark and Sweden. EAO data distinguishes between four origins: national. The number of European first-time release feature films also greatly differs between countries211. 209 See Appendices for detailed data. The most successful national film industries (in terms of domestic market shares) do not necessarily correspond to the largest countries210. EAO208 The circulation of films in theatres – macro-data The production and consumption of films at the national level is now considered using data provided by the EAO209. Spain. In Hungary local market share equals in average 96. the market share of national films was always far below 40% in 2007. In any case. Hungarian films were not included because in every case they are viewed mainly in Hungary without distinction between the various types of films identified here. the UK and productions which have several co-producing countries. whereas small countries do not. For every country the origin of the films made available in theatres. Two factors can be identified: the size of the country (large countries import more films in absolute terms) and language. France. US.

g. where outlets have lower fixed costs. According to EAO data. French and German and so it will import films from France. 215 These figures have remained stable since 2004.213 In the end this corresponds to a high share of non-European films among all films released in every EU country – predominantly US films. EU films (excluding French) represent 13% of all available titles but only 10% of sales215. Belgium. Belgium is also the EU country where the greatest number of films are released (716 films in 2007) despite the low number of local films released. US films represent slightly less than half of all available titles. Belgium imports far more European films (315 films in 2007). Spain.1. in the UK). This is all the more surprising as one might have expected a different profile for internet sales. This market share is over 40% in every EU country and exceeds 60% in a significant majority of them 214. 216 See Appendices for detailed data. This data will be compared with theatrical distribution and VOD data in Section 3. but around 63% of sales in value.2. Belgium is also the highest importer of first-time release feature films from outside Europe. 87 . 214 See Appendices for detailed data. 212 See Appendices for detailed data. France and Germany). the market share of US films is even greater than the proportion of US films among all released films. Similarly. a high number of films are imported from the rest of Europe by Austria and Luxemburg. 213 See Appendices for detailed data. see Appendices for detailed data.g. The distribution of market shares for films on video by origin is more or less the same for all kinds of retail outlets216. Moreover.EAO data shows that the greatest consumers of films produced in other EU countries are the countries that share their official language(s) with bigger countries (e. probably as a result of the fact that its official languages are Dutch. For example.2. while the market share of films from other EU countries is the lowest in the largest countries (e. Austria)212. The circulation of films on video Data on the circulation of video is available for France only and is provided by the CNC. followed by the large countries (the UK. Germany and the Netherlands.

94 47. However.2. analysis of the circulation of audiovisual works in theatres and on video shows significant disparities between EU countries in terms of: − the share of titles (among all films available) and market shares of national films. the existence of VOD services has not resulted in an increase in EU content (relative to other content) being made available or consumed than other versions.97 4. This is the case for theatrical distribution and for video (in the French case).Share of titles and turnover for films on video by origin in France in 2007 (%) 6. what is actually consumed). − the share of titles (among all films available) and market shares of EU (excluding national) films.13 9.01 Titles French US European Other Turnover Source: CNC.1.92 33.1.e. The origin of content that is available in theatres or on video differs significantly from what is made available on VOD services.1.2 examines the circulation of audiovisual works on VOD.54 62. what is made available) and demand (i.05 23. not only in share of titles but even more in terms of consumption. The data which does exist is analysed in detail by distinguishing supply (i. Limited data is available on the cross-border circulation of VOD titles at European or national levels. 3. so far. In the same way. In conclusion.43 12.2 The circulation of audiovisual works on VOD Section 3. Section 3. 88 .e.2. and − the ability of countries’ films to circulate in other EU countries US films continue to dominate the market in most EU countries. the origin of content that is consumed differs according to the version.2.2 examines the same issue with regard to VOD.

this data is for VOD but may not be completely representative since it relates to only one or a few VOD sites. étude pour le Parlement européen. it is very much US film as opposed to other media which dominates the statistics. Origin of content available on VOD in 2008 (%) 14 10 15 10 9 12 10 34 21 35 34 25 70 55 46 27 34 37 57 58 58 58 71 23 2 20 13 18 Others Other EU National US 11 11 6 8 15 16 12 6 8 20 24 7 10 13 26 31 It a ly nc e ar y Sp ai n d n an y k om um ar Po la n ed e un g en m Ki ng d Be lg i Fr a G er m Sw d Source: NPA (2008)217 The results are largely comparable for films. Source: NPA Conseil. The significant differences between countries. and equally European national films represent an area of weakness amongst other forms of content. The share of local content varies from 2% (Poland) to 35% (France). whereas the share of national films is generally lower than the share of national content – in other words. except that the share of US films is generally higher than the share of US content. in terms of the origin of audiovisual content. while the share of other EU content from 8% (Germany) to 34% (Poland). 217 Provided by NPA.The availability of national and EU titles on VOD services Data provided by the NPA shows that US audiovisual content represents between 27% (Spain) to 71% (Netherlands) of content available on VOD services in European countries. also exist at the VOD service level (see following Box). Novembre 2008. L’origine des contenus proposés sur les services de VOD dans l’UE. U ni te 89 N et he r H D la nd s .

L’origine des contenus proposés sur les services de VOD dans l’UE. étude pour le Parlement européen. 220 The share of US content varies from 54% (RTL video) to 80% (Filmclub). The share of national content varies from 1% (Cinema One) to 26% (SF Anytime). the share of other EU content is under 19%. and for other EU content from 12% (SF Anytime) to 34% (Telia).Origin of films available on VOD in 2008 (%) 16 11 15 20 35 33 32 8 4 73 38 24 13 11 5 17 9 15 11 11 5 13 12 13 Others Other EU National US 70 43 48 54 58 60 62 71 9 19 15 6 18 18 5 7 10 10 42 31 It a ly nc e ar y Sp ai n d n an y k om Po la n ed e um ar un g en m Ki ng d G er m Be lg i Fr a Sw d Source: NPA (2008)218 Finally. and Denmark222. However there is some diversity for the other origins. Sweden221. there are some differences between availability on VOD services and availability in theatres for different countries. Novembre 2008. The share of national content is under 25%. this data is for VOD but may not be completely representative since they are related to only one or a few VOD sites. with over 50% of content on offer originating in the US. Diversity of content by origin at VOD service level219 There are significant differences between EU countries regarding the origin of audiovisual content available on individual VOD services: - All services in certain countries offer the same distribution of audiovisual content by origin. However. 90 U ni te N et he r H D la nd s . in the Netherlands national films represented 7% of films available in theatres (in 2007) while they represented 10% of films available on VOD services (in 2008). 222 The share of US content varies from 50% (Film2home) to 98% (Via Sat On Demand). For example. Source: NPA Conseil. 219 All graphs in Appendices. Consistently the share of national content is under 26%. This includes the Netherlands220. 218 Provided by NPA. 221 The share of US content varies from 51% (Telia) to 74% (Via Sat On Demand). in Belgium US films represented around one third of films available in theatres (in 2007) while they represented around 70% of films available on VOD services (in 2008).

To increase the circulation of European audiovisual content a policy could favour the emergence of services that distinguish themselves from existing services in terms of offered audiovisual content. always under 4%. 232 This figure reaches 90% for VOD services of broadcasters. Hungary229. other non-EU audiovisual content up to 31% (Rivideo). The share of national audiovisual content actually varies from 30% (Accine) to 74% (Fimotech). and includes in the same category national and other European titles. This includes France223. In this study. of all available films. declarative. Belgium228. On the other side Neuf VOD offers 22% of national audiovisual content. other EU audiovisual content up to 37% (Rosso Alice). 231 Study on the application of measures concerning the promotion of the distribution and production of European works in audiovisual media services. The share of US audiovisual content however reaches up to 80% (DirectMovie). The study also gives some estimates on the proportion of budget spent on particular sources of programming. 230 The share of US audiovisual content varies from 39% (Videostrada TP) to 84% (ITI Neovision). Op. the share of other EU audiovisual content is rather high. they devote a little over 20% to European non-national content. A recent study partially contradicts the above data on the proportion of European titles of every VOD service’s catalogue231. The share of other EU audiovisual content remains under 18% but the share of other audiovisual content reaches up to 27% (Skyplayer). Content of other origins (national / other EU / others) are more easily available. Spain226. French data provided by the CNC on the origin of films available on various versions allows for a comparison of the role of VOD with other versions in terms of diversity of offer. On Clic Movies it reaches up to 68% (22% for US audiovisual content). other non-EU audiovisual content up to 26% (Pix box). The share of other EU audiovisual content varies from 16% (ITI Neovision) to 44% (Multimedia Polska).cit. 227 The share of US audiovisual content varies from 34% (Rosso Alice) to 72% (Orbit Movies). the UK225. services in some other countries offer varying distribution of audiovisual content by origin. 228 Similarly to theatrical.- However. French films have the highest share in theatres but they do almost as well on VOD. 91 . 226 It stands as an exception since in the analysed VOD sites the share of national audiovisual content is higher than that of US audiovisual content. National audiovisual content has a particularly low share. Such data is. over 30% to national content and slightly less than 50% to non-European acquisitions. Italy227. As for so-called ‘pure VOD’ players. the rest being allocated towards European non-national content. Films may be the least diverse on video where US films represent almost half. In general the second case corresponds to more diversity in consumer choice: every consumer can choose between sites with different offers. European films’ share is more or less the same for every version market. however. Study for the European Commission. 223 On one side M6 video offers 79% of national audiovisual content (and no US audiovisual content) and Imineo 61% of national audiovisual content. Other EU audiovisual content reaches up to 28% (Accine). Finally. May 2009. and French films around one third. 224 The share of US audiovisual content varies from 41% (Archos Content Portal) to 85% (XboX Live). 229 The share of US audiovisual content remains around one third of all audiovisual content. Germany224. The share of national audiovisual content reaches up to 50% (4oD). over half of interviewed representatives of VOD services232 said that more than 75% of their catalogue is made up of EU titles. and Poland230. National audiovisual content reaches up to 28% (Film is now). 225 The share of US audiovisual content varies from 26% (4oD) to 98% (XboX Live). National content represents a significant part (around 90%) of broadcasters’ budget devoted to their VOD services. This comparably moderate level of spending for non-national European VOD licences possibly partly explains why non-national content on VOD sites is not performing as well as it does in theatres or on video.

VOD services might give more visibility to content that is not favoured by the current audiovisual system.0 6. however.4 13.7 47.F ilms available on various vers ion markets by orig in in F ranc e (% ) 10.e. 92 . Data provided by the CNC on the supply and turnover of films on French VOD services shows that the dominance of US films in consumption is even greater than in availability. As a result. 233 Data for theatrical distribution is for 2007.4 6.1 13.5 36. videos’ and VOD’s catalogues (i. however even if all films labelled as ‘other’ for turnover were European this would correspond to a market share that is smaller than the share among available titles. The data is compared to the supply of VOD services and to consumption on other versions.7 33. Accordingly French films’ market share is much lower than the French share of supply. for video 2008. Consumption by origin is now considered in the next section to see whether VOD is more likely to favour the consumption of EU content. what is made available for the consumers) may differ significantly in terms of origin of titles. depending on the country.1 13.8 30. VOD will not necessary follow the path of already existing version markets. VOD services in general have not made more EU content available than other version markets. only data at national level is available. So far.4 C inema F renc h US V ideo E uropean VOD Other Source: CNC233 Theatres’. The fact that US films’ market share is higher than their share of titles has already been noted for theatres and video. for VOD data is for June 2009.7 45. The consumption of national and EU titles on VOD services To analyse the consumption of national and EU content on VOD services. This is already the case for some countries like Hungary. other films’ market share is half of their share of titles234. 234 Unfortunately European films and films coming from another country are not distinguished for turnover.1 43. In the near future.

1 21.5 30.films Source: CNC Data provided by the UK Film Council compares the share of total gross value attributable to UK films by version market. whereas in theatres is it around 30%. Share of total gross value attributable to UK films in 2007-2008 (%) 29.films Supply . On VOD (and nVOD) UK films’ share is around 20%.6 24.7 58.7 15.3 30.Supply and turnover of films on VOD by origin in France (%) 5.1 43. Films are the Se ll t 93 Fr ee m ult nV oD Te r i-c an d To t al .2 11.9 14 6.4 V Vo D de o ca l TV al Pa yT lT V re nt at ri DV D/ vi ia l ha nn e Th e re st r eo DV D/ vid ug h hr o Source: UK Film Council.6 47.3 Supply .8 15.recent films French US EU Other Turnover . As seen before.6 36.0 21. UK films do not perform better on VOD (and nVOD) than in other version markets.5 19. Finally French data provided by the CNC on the origin of films consumed in various version markets compares the role played by VOD to other versions when it comes to promoting EU films.7 22.1 19.

the US films’ market share is higher than their share among all titles available on VOD.6 Theatrical distribution French Video US EU VoD Other Sources: CNC237 It appears that VOD does not particularly favour the consumption of local films in comparison to other version markets.1 36.2 62. but they are not necessarily easier to acquire or more affordable.2 2. either on video or in theatrical distribution.01 11. data for video and VOD refers to 2008. Moreover. Study for the European Commission. 235 Unfortunately no distinction is made between EU and other films but their common market share is lower than the share of EU films alone.6 12. 236 Study on the application of measures concerning the promotion of the distribution and production of European works in audiovisual media services. at the expense of other films. French films’ market share is the highest in theatres and the lowest on video. This is even more the case in relation to EU content. the data suggests that national and other EU films’ market share is lower on VOD than in theatres or on video. European content may be the best way to attract European audiences. EU films’ share is the lowest on VOD235. Op. On VOD. it seems that VOD services are not intrinsically better placed to promote national.8 58.6 30. Films on various versions by origin in France (%) 2 12.3 22. 94 . From this point of view there are not many differences between VOD and the other version markets.least diverse on video where US films represent more than 60% of all consumed films.cit. and most of all EU works. and thus do not enable a higher profit than national or US content. All these conclusions are to be taken cautiously since they rely on a very small dataset. According to representatives of VOD services.6 49. However. May 2009. 237 Data for theatrical distribution refers to 2007. A recent study provides some interesting insights into the reasons why EU content is less likely to circulate236. Their share on VOD is average.

95 . the purchase of advertising spaces and public relations (e.g. e. The role of marketing expenditures in the success of a film is a widely recognised. and − digital distribution might allow a reduction of overall distribution costs The importantance of local distribution to the local success of a film The distribution of any film incurs costs. including all costs necessary for the film to be viewed by local audiences (e. 93-111.1.g. the French film Bienvenue chez les ch’tis (which was a significant success in France) has had uneven results in other countries. This leads to two important findings: − the success of any film in any territory greatly depends on the efforts of local distributors.2. which can hardly be translated. etc.g. The film was. also a hit in Germany.).3. for example. this idea is reflected in the positive correlation between investments in distribution and the eventual success of films in theatres238. Production costs’ role in overall success of a film has also been demonstrated in numerous studies. screenings). using an already existing German accent or leaving aside the differing accents. Caroline.3 The role of local distribution and cost reductions made possible by VOD The role played by distribution is now considered in order to complete the analysis of the circulation of audiovisual works in the EU. One reason for this is that the local German distributor made a particular effort to dub the film.g. 2008. outdoor. including the creation or adaptation of ads to be used on different media (television. pp. instead of. see UK Film Council (2009). Simmons. dubbing) − Marketing costs. According to the data collected on the sample of films to be analysed. Determinants of UK Box Office Success: The Impact of Quality Signals.g. a new German dialect was created by a linguist to reflect the differences of language. 33-2. subtitling. of prints to the theatres). e. 238 All graphs in the Appendices. Many jokes in the film rely on the differences between the accents of the main characters. Rob. however. which are of at least two kinds: − Delivery costs of the versions to the outlets (e. newspapers. Anecdotal evidence confirms that investing in distribution costs can play a key role in the success of a film . Review of Industrial Organisation. see Elliott. For example.

7,000,000

6,000,000

Distribution costs (X, in €) Vs box-office (Y, in €) for film C in various EU countries

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000

Source: a film distributor
Distribution costs (X, in €) Vs box-office (Y, in €) for film G in various EU countries

14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 0

400,000

800,000

1,200,000

1,600,000

Source: a film distributor According to the data on the sample of films, the same kind of relationship exists between distribution costs and VOD revenues in France.

96

600,000

Distribution costs (X, in €) Vs VOD revenues (Y, in €) for various films in France

500,000

400,000

300,000

200,000

100,000

0 0 800,000 1,600,000 2,400,000 3,200,000 4,000,000 4,800,000 5,600,000

Source: film distributors It is possible (and generally the case) that distribution costs will be higher when distributors expect a film to be successful, as they will be more inclined to invest in marketing and communications. All previous data indicates the importance of distribution in the success of films in theatres (and on VOD). Interestingly, distribution is still carried out by national distributors, or distributors that are active at the level of a group of countries (e.g. Germany and Austria; the Scandinavian countries; the Baltic countries). It may therefore be worth considering whether international licensing would help films circulate more widely between EU countries or whether it would in fact be to the detriment of the sector, given that established local distributors might not be able to afford international licences despite their ability to best promote a title in a given territory.

Could VOD help reduce distribution costs? Some insights While collected data on the sample of films seems to confirm the statement by some interviewed distributors that distribution costs play a role in the success of a film, dematerialised distribution might also help reduce distribution costs. Data on the sample of films is again used239. Distributors provided detailed data on the proportions of different costs within the overall distribution budget, according to their nature. As before, costs can be distinguished between delivery and marketing. Dematerialised distribution does not necessarily reduce marketing costs. It is now widely accepted that the internet is part of any marketing plan to promote audiovisual content (especially films). Advertising on the internet is cheaper, notably in terms of purchasing advertising spaces, and can be more efficient than other media240. As a result, the internet plays a greater role in marketing strategies241. However, there is no evidence that it leads to a reduction of the overall level of marketing costs. In other words, digital communications is used in addition to existing offline communications, the former does not replace the latter.

239 EU films produced between 2004 and 2006. For more details see the Appendices. 240 As confirmed e.g. by data provided by the CNC and Médiamétrie. The use of viral marketing through social networks is one of the most appealing strategies for film distributors. 241 Sources: CNC, UK Film Council, film distributors.

97

Among delivery costs, some costs relate to the delivery of physical versions (i.e. prints, transports, freight but also censorship and all unidentified costs), and some to the adaptation for the importing country (i.e. translation, dubbing and subtitling). It is assumed that digitisation and dematerialisation are not likely to help reduce costs related to adaptation. Consequently, any cost-reducing effects of digital distribution will likely be seen in the costs related to the delivery of physical versions. The share of the distribution costs taken up by prints and transportation according to the country where the film was distributed has been analysed. It always remains under 40% and goes down to as low as 16% in France or 8% in Slovakia.
Share of prints and transportation in distribution costs by country
40% 40% 37% 35% 35% 34% 31% 31% 29% 29% 27% 25% 24% 24% 23%

21% 20% 17% 17% 17% 16% 8%

Source: film distributors The share of prints and transportation costs in all distribution costs is lower when one aggregates data according to the film rather than according to the country. In this case, prints and transportation costs do not go beyond 27% of distribution costs.
Share of prints and transportation in distribution costs by film
27% 26% 22% 20% 19% 18% 17%

F

E

C

D

G

B

A

98

The level of prints and transportations costs is even lower when compared to the level of production costs242 (rather than to distribution costs). These costs represent 17% of film F’s production costs; for all other films of the sample they represent less than 10%.
Amount of prints and transportation costs relative to production costs by film
17%

8% 7% 5% 3% 3% 1%

F

E

A

G

C

B

D

Costs related to physical distribution correspond to between 1% and 10% of total (production and distribution) costs for the films of the sample (where available). Dematerialised distribution does not necessarily allow rights holders to save these costs as it does not lead to abandoning exploitation in theatres. However, the findings give an idea of the proportion of distribution costs rights holders might save if they were to release a film on VOD in territories where no other form of exploitation was planned.
Amount of prints and transportation costs relative to total costs by film
10%

6% 5% 4% 3% 2% 1%

F

E

A

G

C

B

D

Costs related to retail outlets such as video or DVD stores can also be compared to those for VOD sites. So far, little research exists which compares the respective costs of a VOD service and a video store (either online or offline). One reason, one interviewed insider explained, is that every VOD service has its own peculiarities. For example, some VOD service providers share their bandwidth between various
242 The main reason is production costs are higher than distribution costs for the films in the sample.

99

the video rental store Blockbuster used to pay $65 for every copy of a video with no possibility to return the copies. Anita. Page 107. For example. Paris. Nevertheless. 246 The study could not however take into account the fact that every service has its own peculiarities. 245 Media Consulting Group. "Effet long tail ou effet podium : une analyse empirique des ventes de produits culturels en France". No. the costs incurred for VOD are hardly comparable with the costs that were previously mentioned: The costs of a VOD service A study conducted in 2008245 assesses the respective shares of various costs according to the size of the VOD service (see following tables) and concludes that246: Costs of launching the VOD service vary from 10% to 18% of total costs. Their value increases in absolute terms but decreases in relative terms the larger the VOD service is Variable operating costs vary from 27% to 65% of total costs. Oberholzer-Gee. Felix. However. Benghozi. 07-015. Op. but there are other non-negligible costs (e. Harvard Business School Working Paper. or costs related to the use of DRM.g. the fact that shelf space is limited also means that some niche products may never be available in general DVD stores. In relation to physical retail. L’économie de la VOD en France. Distributors sometimes simply cannot afford to pay for certain films to be available on the store’s shelves243. digitisation costs seem lower for VOD than for DVD. Mars. See Elberse. Their value increases in absolute terms but decrease in relative terms the larger the VOD service is Fixed operating costs vary from 11% to 25% of total costs. Pierre-Jean. Their value increases in absolute and in relative terms the larger the VOD service is. Because of the existence of inventory costs a non-negligible share of films may be excluded from the market. Paris. Superstars and Underdogs: An Examination of the Long Tail Phenomenon in Video Sales. It concluded a revenue-sharing deal with the major studios (including a 40% share of rental revenue and a precise account of rental consumption to go to the studios) that allowed DVDs to be pushed through the video rental stores and that expanded Blockbuster’s market share from 40% in 1997 to 50% in 2002244. 100 .The Economics of Digital Media Industries. 2006. Ministère de la Culture et de la Communication. Mars 2008. - 243 Studies on the online sales and rentals of DVD show that it favours a form of Long Tail effect. which varies from 19% (for the smallest services) to 36% (for the biggest services) of total costs Structural costs vary from 14% to 31% of total costs. This makes it particularly difficult to isolate the cost of the bandwidth for the VOD service alone. However. Variable operating costs include the revenues transferred to rights holders. It should be added that US distributors are far more concentrated than EU distributors. which makes it easier for US distributors to conclude such agreements. costs related to the management of payment devices.sites including the VOD service. However. 2006. study done for the CNC. the effect remains slight. because some delivery costs are reduced. see also the following box). More generally. When Internet meets Entertainment . 244 See Bomsel Olivier. Geffroy Anne-Gaelle and LeBlanc Gilles. PREG-CRG. through contractual arrangements between retailers and distributors these inventory costs can be shared. 2008. Presses de l'école des mines.cit. there are barriers to entry to the market.

This is notably the case where VOD allows for some cost savings. networks’ efficiency. incl.: 107 K€ 1. editorial costs. 101 .g. incl.Costs of launching 18% 12% 10% . this does not take into account the use of social media to more cheaply – and potentially more efficiently – market audiovisual content.cit. marketing costs and money transfers to rights holders) according to the size of the VOD service Smallest Services Medium Services Biggest Services Operating costs. Op.Editorial costs 1% . etc.) Marketing costs vary from 18% (for the smallest services) to 43% (for the biggest services) of operating costs. better compression formats. Mars 2008. L’ économie de la VOD en France. Finally.Operating costs Fixed 25% 12% 11% Variable 27% 44% 65% . study done for the CNC. study done for the CNC.443 K€ 10.Money transfers to rights holders 39% 50% 49% Source: CNC (2008)248 247 Media Consulting Group.The study finds that costs of launching are not very high.400 K€ 8. Income could be increased even more with VOD services reaching a critical size.226 K€ . The study shows that VOD may in some cases already allow rights holders to get a higher income than DVD sales. Operating costs are also distinguished according to their aim (technical / editorial / marketing / rights holders) (see following tables): Money transfers to rights holders vary from 39% to 50% of operating costs Editorial costs are very low Technical costs vary from 8% (for the largest services) to 42% (for the smallest services) of operating costs. Table: Distribution of total costs (among costs of launching. operating costs and structural costs) according to the size of the VOD service Smallest Services Medium Services Biggest Services Total costs. Mars 2008.Technical costs 42% 21% 8% . L’ économie de la VOD en France.924 K€ . making it relatively inexpensive to launch a VOD service. 248 Media Consulting Group.cit.Structural costs 30% 31% 14% Source: CNC (2008)247 Table: Distribution of fixed and variable operating costs (among technical costs. Variable technical costs should decrease following technical improvements (e. Op.Marketing costs 18% 28% 43% .: 200 K€ 2.

The VOD market is just emerging in most EU countries and there remain significant disparities between VOD markets in different countries. Section 3.1 was to describe the EU VOD market from an economic point of view. VOD does not especially favour EU content compared to US or national films. notably with a view to assessing the possible implications for VOD. Moreover. the lower the delivery costs. This includes EU films. The higher the income (in relative and sometimes absolute terms) directed towards rights holders. 102 .1’s main findings are: − On the supply side. Very different stages of development have been reached in each country. the VOD market is in its infancy in the EU (best illustrated by the increase in the number of services and service providers).2 explores possible evolutions in the next five to ten years of EU VOD markets. which include the possibility of using social media and new marketing strategies. which could allow EU films to be more easily available for consumers. The circulation of audiovisual works in the EU was then considered. Section 3.1. films. despite some growth. This may change at the point when VOD providers are able to fund production (substituting investments from traditional distributors) in the medium to long term. any policy that would threaten their position could have undesirable side effects on the functioning of local audiovisual industries − Dematerialised distribution of audiovisual works may allow some cost reductions. VOD revenues still remain marginal. which might favour circulation of so-far unexploited titles in certain territories. as this would give producers incentives to licence to such platforms − Local distribution still has an important role in the local success of a film and the financing of production. As a result. future developments in these markets may result in a very different environment to that which exists today − On the demand side. a description of the supply and demand sides of the VOD market was provided at the country level.3 Conclusion The aim of Section 3. although films should be distinguished according to their type and their country of origin − Data indicates differences between VOD and other audiovisual markets in terms of availability and consumption of films by origin. This shows that the VOD market has yet to fully mature − Consumers generally prefer national or US.3. To do so. EU films do not circulate well in other EU countries. Efforts could be made to promote international licensing. This would allow EU film producers to profit from the assets of VOD. However. This includes taking into account all features described in this section to see how they can influence the development of VOD in the EU. rather than EU.

e. which would also imply that licences are sold to more than one territory at a time.2 Outlook and impact analysis As requested in the tender specification.2. 103 . Broadband network capacity is. likely to be saturated. a fact which is reflected in the projections. An observation of how EU audiovisual content markets have evolved. This is further outlined in the conclusions of Chapter III.2 should be considered with some caution. however. Regarding macro-economic and communication facilities. However. The impact of this development is considered both from an economic and a cultural point of view. The first is that the status quo remains in place. In summary. Following the tender specification. i. which would degrade VOD through the internet. However. two potential Scenarios are identified. The analyses conducted in the previous Sections are taken as a starting point. it is obvious that the result would be greatly affected by the choice of the means. two areas of development are taken into account: macro-economic and communication facilities (e. overall economic situation. While we try to predict the consequences of such a development. The crucial issue is the speed at which this development takes place both at EU and national level.b) is dismissed since the environment should at least be influenced by the development of technology.e.g. and as a result the size of the potential market for digitised audiovisual content is expected to increase. Most players are interested in operating in other countries. only that regulation is not specifically used to favour a move towards international licensing. development of broadband infrastructure). this study formulates forecasts on the likely development of online distribution for audiovisual works in the 27 EU Member States. the numerous current market uncertainties mean that conclusions should be considered cautiously.g. this does not necessarily mean that nothing at all will change. 250 Such regulation can take many forms. and the legal and commercial practice environments.249 Regarding developments in the legal and commercial practice environments. licensing remains primarily territorial. seem to indicate a trend towards a greater unification of these markets. The second Scenario is based on the assumption that regulation would support international licensing. by introducing a second multi-territory licence for online distribution which bundles some or all remaining EU countries for which no distribution agreements exist (see tender specifications). However. the VOD market is still in its infancy stage. computers. it is assumed that these are going to undergo overall development: the proliferation of digital equipment and infrastructure (such as digital televisions. This Section aims to predict what the consequences of such a development would be. but also broadband connections) should increase in the next five to ten years. so the outlook developed from the forecasts made in Section 3.3. different Scenarios are provided: − Two different macro-economic and communication facilities Scenarios (slow or rapid development) − Two legal and commercial practice environments Scenarios (based on either territorial or international licensing) 249 The idea of an unchanged environment as suggested in the tender (2.250 In this case the VOD market would to some extent be reshaped. and most of all discussions with key players.

This is especially the case with VOD turnover and the number of VOD services. While the economic analysis has been developed in Chapter II and Section 3. and. because the VOD markets are in their infancy stage.2.1 Economic and cultural outlooks over five to ten years 3. it is worth detailing which inputs were used in the models.2. In turn more VOD services may lead to a higher VOD turnover. To repeat. Three kinds of inputs were used: − Data on VOD turnover by country from 2010 to 2013. which renders any prediction even weaker − Data on the number of VOD services available in every country in 2006 and in 2009 − A typology of the EU national VOD markets The impact of the four Scenarios on the EU VOD markets was assessed through 5 outputs. moreover. such data should be considered cautiously: firstly because they are predictions. An increase in VOD turnover may incite new players to enter the VOD market. thus increasing the number of VOD services available in every country.1 Economic and cultural outlooks for the EU VOD market The description of each Scenario relies on the combination of economic analysis and formal mathematical modelling.1.1. these outputs are not necessarily correlated with one another. The contrary is however also possible: an 104 . every one of which is analysed in the following subsections: − Growth of VOD turnover − The number of VOD services available in every country − Circulation of audiovisual content on VOD services − Concentration of VOD market − Impact on audiovisual market Crucially.Table: The various Scenarios for the development of the EU VOD market Macro-economic and communication facilities development Slow development International Development licensing of legal and commercial practice Territorial licensing environments a Rapid development b c d 3.

105 .increasing number of VOD services may lead to fiercer competition based on price cuts at the expense of growth of VOD turnover. An increase in VOD turnover may also rely on a more concentrated market.

In Section 2. Six groups of countries were obtained:252 Group 1: France. 253 See the statistical analysis in the Appendices. i. Lithuania. Ireland. Latvia. Luxembourg.Additional information on inputs used to calculate the outlook Three kinds of inputs were used to build the models: − − − Data on VOD turnover was provided by Screen Digest. In Section 3.1. Netherlands. Group 6: Bulgaria. 106 . i. reflecting the fact that previous typologies were consistent with one another. Group 4: Austria. Italy. It is one of the only sources (if not the only source) of data on VOD markets across the EU. The typology of the EU’s national VOD markets relies on four typologies described in the previous Sections. countries are ranked in the alphabetical order. which resulted in a very incomplete and non-robust overall typology.1 two typologies were built based on the structure and performance of the VOD markets. their structure and their performance. Data on the number of VOD services was provided by NPA (for 2006) and by IFTA (for 2009). considered one of the most reliable sources of data on the European audiovisual market. countries tended to be grouped in the same way253. Poland. Finland. Spain.e. These are more thoroughly described in Section 3. The final result is consistent with the previous analyses.1 two typologies were built based on the characteristics of the audiovisual markets as a whole. Germany. The four typologies were cross-referenced to obtain our final typology of markets (see next table)251. Slovakia. United Kingdom. notably the Spearman matrices. The following table explains the links between this final typology and the previous ones. mainly because there was too much missing data. Estonia. Slovenia. Malta. Group 3: Czech Republic.e. 252 In every group. Sweden. Data is detailed in the next subsection (see notably next graph). 251 We were not able to directly conduct a clustering analysis based on our data. which were created using clustering methods. Cyprus. Group 5: Portugal. Greece. Group 2: Belgium. Hungary. Romania. Denmark.

higher share of domestic films among all films available Higher share of non-European films among all films available 2 3 Estonia Latvia Portugal Sweden Czech Republic Ireland Poland Denmark Germany Netherlands UK Czech Republic Latvia Portugal Slovenia Germany Sweden Higher share of films from other European countries among all films available Higher revenue per capita of theatres.Table: Summary of the previous typologies of audiovisual and VOD markets in the EU Typologies of… EU audiovisual markets according to their structure Groups 1 France Spain Bulgaria Finland Lithuania Romania Austria Denmark Luxembourg Slovakia Austria Finland Ireland Spain Bulgaria Estonia Lithuania Romania Belgium Italy UK Austria Hungary Poland France UK Austria Denmark Germany Ireland Poland Slovakia Countries Germany UK Cyprus Greece Malta Slovenia Belgium Hungary Netherlands Belgium France Italy Sweden Cyprus Hungary Poland Slovakia France Spain Italy Characteristics More screens per capita. DVD and TV companies Lower revenue per capita of theatres. DVD and TV companies Higher number of broadcasters among VOD service providers and of rental services among VOD services Lower number of broadcasters among VOD service providers and of rental services among VOD services Higher turnover for distribution through satellite. higher ARPU for SVOD Lower turnover for distribution through satellite. more TV channels available in the country. lower ARPU for SVOD EU audiovisual markets according to their performance 1 2 EU VOD markets according to their structure 1 2 Bulgaria Ireland Portugal Italy Czech Republic Luxembourg Spain EU VOD markets according to their performance 1 2 Belgium Estonia Greece Luxembourg Portugal Slovenia Czech Republic Finland Hungary Netherlands Romania Sweden 107 .

Malta258 Audiovisual structure 1 2 or 3 3 3 2 2 VOD performance 1 2 2 2 2 - Note: The table reads in the following way: countries that belong to Group C are Czech Republic. is taken as a basis for our outlook (Scenario C of graph in introduction259. Romania. Germany. Ireland. Finland. 258 Malta and Greece are not classified for audiovisual performance. 256 Luxembourg is not classified for audiovisual performance. Poland. see the Appendices. 257 Portugal is classified in Group 2 for VOD structure. Poland. Estonia. They all belong to Group 3 for the structure of their audiovisual market.Table: The final typology of VOD markets in the EU and its links with previous typologies Classification according to: Audiovisual VOD performance structure 1 1 2 1 2 2 1 1 2 2 - Group A B C D E F Countries France. Hungary. Hungary. 259 This data makes a distinction between EST and rental as against SVOD markets. 254 Germany is classified in Group 2 for VOD performance. For data by distribution platform at the EU level. Slovakia Austria. to Group 2 for the structure of their VOD market. Denmark. and Slovakia. Greece. 108 . Luxembourg256 Portugal. 255 Denmark. Lithuania. Latvia. Slovenia257 Bulgaria. Netherlands and Finland are not classified for VOD structure. UK254 Belgium. Netherlands. Sweden255 Czech Republic. Italy. Output 1: Growth of VOD turnover The future development for the EU VOD markets from 2009 to 2013 predicted by Screen Digest. Cyprus. which is illustrated by the following graph. to Group 2 for the performance of their audiovisual market. to Group 2 for the performance of their VOD market. Spain.

There may of course be exceptions.e.4 million. To assess this increase (Scenario D) the same calculation was applied as in the previous formula. on social networks). However there are differences in the absolute values. but the only available data is for France. The economic analysis (see Section 2.5 million to € 96. in every Group the country with the lowest growth rate was dropped (see next box). which may be due to different perimeters of assessment.Development of VoD turnover in the EU (millions of €) 1 245 1 019 813 611 417 371 2009 504 641 780 929 2010 SVoD 2011 Rental & EST 2012 2013 Source: Screen Digest Since Screen Digest’s projections are used as a basis in this report for calculating growth in VOD turnover. In general terms. some audiovisual works may be easier to sell internationally due to new forms of marketing and promotion (e.260 For the purposes of this assignment it has also been assumed that a rapid development of macroeconomic and communication facilities would increase the pace of growth of VOD turnover.g.1) indicates that this is unlikely to happen. Data provided by the CNC shows an increase by 55% from € 53 million to € 82. including VOD. i. growth of VOD turnover is predicted at the level of each group of countries. In the current assignment. In fact Screen Digest predicted VOD turnover to increase by 54% from € 62.3 million. For the moment this is only possible for 2009. 260 The question of whether Screen Digest’s forecast Scenarios have been confirmed by reality has not been assessed. However. which would expand the market. largely because there are few economies of scale in the distribution of audiovisual content since each individual market requires its own marketing spend. Technology would become more easily accessible for consumers. The assumption is somewhat rudimentary but it provides consistency at the Group level while giving an idea of growth of VOD turnover under a more ‘favourable’ environment. Currently national distributors are the most capable of handling the distribution of audiovisual content in their own markets. it is assumed that Screen Digest’s figures correctly predict the development of VOD turnover in the above graph. In this case Screen Digest’s predictions are confirmed. to avoid biases as a result of one country having a particularly high or low growth rate. It is a debatable issue whether a proposed introduction of international licensing would have an impact on the level of VOD turnover (compared to territorial licensing). VOD Turnover is assumed to be the average of each country’s expected growth rate (see next box). developments under Scenario C are the same as those predicted by Screen Digest. 109 .

e. betting on international licensing only as a means to increase VOD turnover is a risky strategy. and Scenario B is comparable to Scenario D. with: card(k ) .500% Group F: + 250% Group A: + 120% Group B: + 880% Group C: + 540% Group D: + 490% Group E: + 1. This will be further expanded in the conclusions of this Chapter.850% Group F: + 300% Modelling growth of VOD turnover Growth of VOD turnover is predicted for each Group of countries and is assumed to be the average of  X i2013 − X i2009  ∑  X 2009   i i∈{k } every country’s expected growth rate. However.In addition. However growth of VOD turnover should be promoted through other means than international licensing. 110 . Because of this.X ij VOD turnover for country i during year j and . ∆X k (c ) = . the international availability of some works may in itself increase the market for cross-border consumption of those works. This is not to say that there are no differences at all between territorial and international licensing.6] are given for the analysis of each Group. Table: Growth of VOD market in the four Scenarios for every group Macro-economic and communication facilities development Slow development Rapid development International licensing Development of legal and commercial practice environments Territorial licensing Group A: + 100% Group B: + 740% Group C: + 460% Group D: + 380% Group E: + 1. these opportunities are unlikely to significantly influence VOD turnover. i. Resulting values for the ∆X k (c )k ∈ [1. This means that Scenario A is comparable to Scenario C. International licensing would in fact have a significant influence on the circulation of EU films – see the following subsections.∆X k (c) growth of VOD turnover for the kth group (of countries) from 2009 to 2013 under Scenario C. the development of legal and commercial practice environments has no direct impact on VOD turnover.

In Scenario A or C the calculation is the following:  X 2013 − X 2009  ∑  i X 2009 i   i i∈{4 } ∆X 4 (c ) = card(4 ) ⇔ ∆X 4 (c ) = ⇒ ∆X 4 (c ) = 2013 2009 2013 2009 2013 2009 X Austria − X Austria X Ireland − X Ireland X Luxembourg − X Luxembourg + + 2009 2009 2009 X Austria X Ireland X Luxembourg 3 . Both formulae (Scenario A or C on the one hand.91 2 111 .Consistently the formula can also be applied at the EU level: ∆X (c ) = i∈{EU } ∑X 2013 i − i∈{EU } ∑ X i2009 i∈{EU } ∑X 2009 i where i∈ {EU } ∑X j i represents the sum of VOD turnover for every EU country during year j. card (k ) −1 Finally it is assumed that the development of legal and commercial practice environments has no impact on growth of VOD turnover. the calculation is the following: ∆X4 (c) =  Xi2013 − Xi2009   Xi2013 − Xi2009 ∑  X 2009  − min X 2009   i∈{4}  i i i∈{4} card(4)−1 ⇔∆X4 (c) = ⇒ ∆X4 (c) = 2013 2009 2013 2009 2013 2009 2013 2009 XAustria − XAustria XIreland − XIreland XLuxembourg− XLuxembourg XLuxembourg− XLuxembourg + + − 2009 2009 2009 2009 XAustria XIreland XLuxembourg XLuxembourg 2 5. and Scenario B or D on the other) can be applied for k = 4. 5. slow macro-economic and communication facilities development).89 + 1.e. for Group D (including Austria. Literally the growth is calculated by comparing Screen Digest’s predictions for VOD turnover at the EU level in 2013 with Screen Digest’s prediction at the EU level in 2009.89 = 4. Applying this formula VOD turnover is expected to increase by 180% at the EU level in the next four years in Scenario C (i.e.94 + 3.58 = 3.e. For example still if k = 4.94+ 3. In Scenario D. ∆X k (b) = ∆X k (d ) and ∆X k (a) = ∆X k (c ). ∆X k (d ) = { } . i. Therefore.8 3 VOD turnover is predicted to increase by 380% from 2009 to 2013 for countries that belong to Group D in Scenario A or C. Ireland and Luxembourg). i. the same calculation is applied except that in every Group the country with the lowest  X 2013 − X 2009   X 2013 − X 2009  ∑  i X 2009 i  − min} i X 2009 i   i∈{k   i i i∈ k  growth rate is dropped.

Scenario C exhibits the least change in the VOD market. As a result the number of VOD services available in every country is expected to increase by 100% in Scenario B in the next five to ten years (see next box). Output 2: The number of VOD services available in each country The second output considered is also assessed with a formal mathematical model. international licensing and a rapid development of macro-economic and communication facilities.1). Group C was here taken as a reference point since it includes countries whose VOD markets are late to develop compared to other VOD markets in the EU.e. The trend from 2006 to 2009 was used as the basis for projections for the next five to ten years. As a result they might be more indicative of what the impact of international licensing could be.e. The figure is consistently higher than in Scenario C. The number of VOD services available in every country is expected to increase by 40% in Scenario C in the next five to ten years (see next box). i. The number of VOD services available in every country is expected to increase by 70% in Scenario D in the next five to ten years (see next box). It was necessary to make this assumption due to the lack of data on the sector. Scenario B addresses two major changes at the same time. The number of VOD services available in every country is expected to increase by 70% in Scenario A in the next five to ten years (see next box). However countries in Group C are more open to other EU audiovisual content. France and the Netherlands. as a result. The figure is consistently higher than in Scenario C: international licensing is likely to increase the number of services available in every Member State and especially in the smallest ones. Group A was here taken as a reference point since they are the most advanced VOD markets. These are also the countries that are the closest to the maximum number of VOD services. It was assumed that both changes would have a cumulative impact on the development of the number of VOD services in Scenario B. i. 261 Moreover entrance may be easier due to a reduction in the costs of access to technology (see also Section 3. to an even higher increase in the number of VOD services In Scenario A development of macro-economic and communication facilities remains slow but there is development towards international licensing. a rapid development of macro-economic and communication facilities is expected to lead to the entrance of more VOD service providers261 and. All predictions are made at the EU level. every country is assumed to experience more or less the same development of the number of VOD services available. In Scenario D licensing is territorial but with a rapid development of macro-economic and communication facilities.VOD turnover is predicted to increase by 491% from 2009 to 2013 for countries that belong to Group D in Scenario B or D. The model is based on data for the number of services available provided by the NPA (for 2006) and IFTA (for 2009). and to the fact that VOD markets are in their infancy stage making it difficult to make accurate projections. The countries where there were the most VOD services in 2006 and in 2009 were taken as an indicator of future development: Germany. largely due to the size of every national market that might have favoured the rapid emergence of VOD services. 112 .

Netherlands ) . card (1) 113 . It is based in every case (except for Scenario B) on the trend from 2006 to 2009 for a subset of EU countries.67 ≈ +70% . i.Table: Number of VOD services in the four Scenarios Macro-economic and communication facilities development Slow development Rapid development International licensing Development of legal and commercial practice environments Territorial licensing + 70% VOD services + 100% VOD services + 40% VOD services + 70% VOD services Modelling the development of the number of VOD services available in every country The number of VOD services is predicted at the EU level.38 ≈ +40% 3 . France.  Yi2009 − Yi 2006  ∑  Y 2006   i i ∈ {1} In the same way: ∆Y (d ) = = 0.∆ Y (c ) development of the number of VOD services in the next five to ten years in Scenario C.  Y 2009 − Y 2006   i 2006 i  ∑ Yi  i∈{Germany. France. with: 2009 2006 2009 2006 2009 2006 YGermany − YGermany YFrance − YFrance YNetherlands − YNetherlands + + 2006 2006 2006 YGermany YFrance YNetherlands ⇔ ∆Y (c ) = = 0. Netherlands } ∆Y (c ) = card (Germany.e. France and the Netherlands.Yi j the number of VOD services for country i during year j and . Germany. with ‘1’ standing for Group A. In Scenario C it is the average of the countries that are the closest to the maximum number of VOD services.

instead further investment in marketingto create demand is required. it is not possible to thoroughly assume that US blockbusters will be the main beneficiaries of an environment more supportive of international licensing. An environment that is supportive of international licensing would favour US blockbusters since they are the least risky. there is a correlation between the levels of distribution costs in different version markets and overall revenues derived from the exploitation of a particular film. greater exposure might 262 The issue of content is not fully summed up in the following table because there are different situations according to the country.e. It is plausible that an environment that is more supportive of international licensing would enable EU audiovisual content to circulate more easily between EU countries. the third term is the development in Scenario C in which the least change occurs. Independent filmmakers should benefit more from digital distribution because the costs of traditional distribution act as a barrier for them to access the market. More generally. Therefore the analysis focuses on the opposition between territorial licensing (Scenarios C and D) and international licensing (Scenarios A and B). i. Thus a current rule is that films without any theatrical release do not succeed in other version markets. the third output now relates to what is going to be provided.262 The justification for this assumption is as follows. In other words. As for the difference between territorial licensing and international licensing. and more generally from global awareness levels due to the size of their marketing and communications campaigns. Output 3: Circulation of audiovisual content on VOD services Having predicted who (VOD services) was going to provide VOD content and at which level. However. card (3) For Scenario B it was assumed that both changes would have a cumulative impact on the development of the number of VOD services in Scenario B. possible developments are summed up in tables for particular Groups of countries.e. 114 . are the films that appear to be circulating most easily online as well as offline (see Section 3. ∆Y (b) = (∆Y (d ) − ∆Y (c )) + (∆Y (a) − ∆Y (c )) + ∆Y (c )The first term isolates the influence of a rapid development of macro-economic and communication facilities. Yi 2009 − Yi 2006  ∑  Y 2006   i i ∈ {3 } And: ∆Y (a ) = = 0. with ‘3’ standing for Group C. ∆ Y (b ) ≈ + 100 % . These films benefit from their previous success in theatres. US films. digital distribution by itself will not increase levels of circulation. which kind of audiovisual content would profit from each Scenario? The first assumption is that the pace of development of macro-economic and communication facilities should not have any significant influence on the kind of content that is going to be provided on VOD services. As explained in depth in Chapter II. the second term isolates the influence of international licensing.1). US blockbusters. However commercial success also depends on their ability to market their films and to make films people want to see. i. As a result.71 ≈ +70% . However currently their rights holders rely on existing distribution patterns and have not tried to impose homogeneous distribution all over Europe. As a result.

in most cases.1).g. This could be done notably through the development of international VOD services. The existence of such services could 263 There are several arguments to be taken into account. A greater level of consumption implies better marketing (and generally higher advertising costs)263. 115 . for a Long Tail to emerge there is a need for information (e. Actually there is a trend towards a greater unification of the EU audiovisual content market. for localised marketing or for recommendations provided by the VOD service) that would lead to greater exploration and discovery by the consumer.not lead to higher consumption overall. The Long Tail theory is again relevant here (see Section 2. As a result. Secondly. measures that allow a reduction of such costs would favour the circulation of EU audiovisual content.e. In the absence of such information and the resulting change of behaviour of consumers. First. operating on a larger scale) does not imply a higher level of consumption. The question here is not only the number and the market power of the players but also their nature. At the same time the development of international distribution models may benefit only those EU contentaudiovisual products that are the most likely to circulate (see Section 3. VOD services will be in the most favourable position to bargain. i.e. audiences would consume content on VOD services in the same way as they are doing in theatres. Table: Circulation of audiovisual on VOD services content in the four Scenarios Macro-economic and communication facilities development Slow development Rapid development International licensing Development of legal and commercial practice environments Territorial licensing Significantly higher circulation of EU films Only slightly higher circulation of EU films Output 4: Concentration of VOD market The fourth output that is influenced by the Scenario is the concentration of the VOD market at EU and at national levels. according to the Group of countries). Finally – and perhaps most importantly – the availability of more VOD services active in several EU countries (i. international licensing would encourage concentration of the VOD market at the EU level. most actors are interested in being active in other EU countries. The issue of the circulation of films in the EU will be further discussed on a case-by-case basis (i. i. This however presupposes that transaction costs to get a licence for the content would not be too high.e.2). their original role in the audiovisual sector. According to the previous analyses.e. it is very likely that EU content would be more easily available across the EU since VOD services active at EU level might have an interest in proposing the widest catalogue possible.

In fact. Creative Destruction: How Globalization Is Changing the World's Cultures.1). Thus cable operators are not considered here as broadcasters. As a result in Scenario D both kinds of players (broadcasters and operators) might be advantaged. Moreover operators’ turnover in content might be very low.g. With a rapid development communication facilities and if territorial licensing remains the rule. In the most established VOD markets broadcasters265 dominate VOD service provision (see Section 3. The pace of development of macro-economic and communication facilities might have an influence on the nature of the providers that would see the most growth. However they have some assets to take advantage in a scenario that would combine a rapid development of macro-economic and communication facilities and international 264 See notably Tyler Cowen. telecommunications and cable operators rarely operate outside of their national market. VOD services can therefore be bundled with other audiovisual services. or force. Increased concentration could favour market growth. as well as from the power of their brands. This includes fixed costs that can be split between more titles.264 Such a development would benefit VOD service providers that are able to be effectively active at EU level (at least in the major markets). As a result they would still be the actors who keep a direct access to end-user (in their current markets). Nokia and Ericsson might impose themselves in the EU VOD market. 265 The ‘broadcasters’ are the players whose activity consists in programming content (e. On the other hand technology companies such as Google. They are new players since they are not active in the rest of the audiovisual system in the EU. Princeton University Press. TV channels). which might be considered as a probable outcome for the structure of EU VOD markets. the financing of production by VOD providers. 2002. Scenarios A and C are characterised by the domination of broadcasters. A possible direct consequence would be consolidation of providers at EU level with a lower number of providers – and possibly a few of them controlling most of the market. telecommunications and cable operators would benefit from their current position as established players. Broadcasters may also be in charge of delivering the channels but this alone does not define a broadcaster. Therefore there is a higher concentration of VOD market in Scenarios A and B. A greater concentration is a common consequence of opening markets. this would encourage competition between providers who were until then acting in separate markets. it could also incite governments to incentivise.be made easier by international licensing. On the one hand. A rapid development of macro-economic and communication facilities would be unfavourable to broadcasters who package content. Market entrance would be limited by the rather slow development of the VOD market. When VOD services get bigger they can benefit from economies of scale and economies of scope that make them more competitive. Moreover. the increased revenues derived from the consumers’ subscriptions would compensate for the losses derived from the exploitation of VOD services. VOD services can play this role and show a loss as long as the development of facilities is strong enough. Broadcasters would become more dependent on those players who master the quickly evolving delivery networks. Microsoft. The reason is that broadcasters benefit from economies of scale and scope since they already own exploitation rights for audiovisual content. International licensing should lead to a greater unification of the VOD market at the EU level. or access to a larger catalogue. Apple. such as internet access. 116 . Mergers and purchases could be a way for them to expand outside their original market. but VOD services could be used principally to attract consumers to operators’ other services.

117 . device or software to watch audiovisual content). This might affect most of all the DVD market and.licensing. Therefore Scenario B is characterised by the domination of operators and/or technology companies. like the operators they can recoup losses in VOD through additional profits made on other activities (e. This argument is based on the idea that every major technological breakthrough has substantially shaken the audiovisual system as a whole. the introduction and development of television led both to lower revenues for theatrical distribution and to an expansion of the audiovisual market as a whole. to a lesser extent. Table: Concentration of VOD market in the four Scenarios Macro-economic and communication facilities development Slow development Rapid development Higher concentration of the VOD market to the benefit of telecommunications and cable operators and/or technology companies International licensing Development of legal and commercial practice environments Territorial licensing Higher concentration of the VOD market to the benefit of broadcasters Domination of broadcasters Telecommunications and cable operators and broadcasters have respective advantages Output 5: Impact on the audiovisual market Finally. a higher pace of VOD market development might prove detrimental to other version markets – which still constitute the bulk of revenues. For example.g. In some cases entire local audiovisual production and distribution systems might be endangered if competition with VOD services would increase in those systems. television. Notably they are already present in every member state.

Table: Impact on the audiovisual market in the four Scenarios Macro-economic and communication facilities development Slow development Rapid development International licensing Development of legal and commercial practice environments Territorial licensing Competitive pressure on the audiovisual market - 118 .

have 10 services in country X and 10 services in country Y (total: 20 services). Therefore. only 12 services are available on a common basis (vs. 10+10). 267 “Greater concentration of the VOD market” does not necessarily mean a lower number of VOD services. there has been an increase as every citizen in both countries has access to more services (17 or 15. However.Table: The various Scenarios for the development of the EU VOD market – brief summary Macro-economic and communication facilities development Slow development Medium increase in the number of VOD services (+ 70%)266 Significantly higher circulation of International EU films licensing Greater concentration of the VOD market to the benefit of Development broadcasters of legal and commercial practice environments Low increase in the number of VOD services (+ 40%) Territorial Only slightly higher circulation of licensing EU films Domination of broadcasters Rapid development High increase in the number of VOD services (+ 100%) Significantly higher circulation of EU films Greater concentration of the VOD market to the benefit of telecommunications operators and/or technology players267 Competitive pressure on the audiovisual market Medium increase in the number of VOD services (+ 70%) Only slightly higher circulation of EU films Telecommunications operators and broadcasters have respective advantages Competitive pressure on the audiovisual market 3. The number of VOD services referred to in the following analysis corresponds to the number of VOD services that are available in every EU country.1.2. only the VOD market’s features that are different from Scenario C (where the least change occurs) are mentioned. Standard economic analysis shows that greater concentration may lead to higher prices and lower output (e.1.1. The following numerical example shall illustrate this: You could.2 Economic and cultural outlooks for the EU VOD market by country The methodology of the grouping The analysis is now refined to consider the implications of every Scenario on individual EU countries rather than on the EU market as a whole. many services at EU level that are not available for a Belgian citizen. according to the country compared to 10). To keep the analysis as comprehensible as possible.g. audiovisual content) made available. but a limited number of VOD services would have a higher overall market share. for example. country X and country Y.2. This number is not necessarily correlated with the total number of VOD services made available at EU level and that cover all the 27 Member States. 266 119 . the number of VOD services at the EU level could decrease while the total number of VOD services available for citizens in general could increase. The countries are grouped according to the methodology explained in Section 3. Therefore. for example. Given that only a share of these might be available in both countries one could end up with 7 services from country X and 5 services from country Y available in both. There are.

UK) Countries in Group A are the major audiovisual markets in the EU and among the largest per capita. This reflects these countries’ abilities to produce a large number of films. As a result.1. IT. While VOD turnover for the whole of the EU is expected to increase by 180% in the next four years.1) There are some consequences of these Scenarios that are common to all Member States. In fact the relative importance of pure VOD players seems to be higher in the most advanced VOD markets (see Section 3. for countries of Group A (excluding Germany). as shown by the high level of the ARPU for SVOD. but they are expected to grow at a slower pace than most other Member States’ markets.1). since there is little taste for non-national EU audiovisual content in the countries of Group A. ES. These countries’ VOD markets are advanced in terms of turnover and ARPU compared to others.2. it is expected to rise by 100% (increasing to 120% should rapid development of macroeconomic and communication facilities occur).2. Table: The various Scenarios for the development of the EU VOD market – Group A Macro-economic and communication facilities development Slow development Rapid development + 100% VOD turnover + 120% VOD turnover Development International Higher exports to other Member Higher exports to other Member of legal and licensing States States commercial practice + 120% VOD turnover environments Territorial + 100% VOD turnover licensing Notes: in every Scenario there might be an increase in the relative importance of pure VOD players.1. These markets are far from mature. Finally.1. it is unlikely that the circulation of such content would particularly increase. Such predictions are confirmed by the formal mathematical models (see Section 3.1 and not recalled here. 120 .2. As a result. They are summarised in Section 3. this turnover is expected to rise by nearly 500% in the next five years. In these countries there are more broadcasters among VOD service providers. The development of legal and commercial practice environments has no direct impact on VOD turnover (see Section 3.1). As a result the number of broadcasters is expected not to increase any more these countries might see a rise in the importance of pure VOD players.Economic and cultural outlooks – Group A (FR. Germany stands as an exception since its VOD turnover is rather low. international licensing could benefit local production by enabling increased exports to other EU countries. GER. In the countries of Group A there is a significantly higher number of domestic films available in theatres as a share of all films available (although this does not always correspond to a higher market share).

3. In these countries there are more broadcasters among VOD service providers268. 270 The study foresees an increase in imports in certain markets but this does necessarily mean that imported films will substitute totally to local works. This means that the circulation of films between these countries and other EU countries is expected to increase in an environment that is based on international licensing.Economic and cultural outlooks – Group B (BE. 269 More precisely Belgium is included in three markets since it shares the same language as respectively the Netherlands. France and Germany. As a result a higher growth rate is expected for SVOD and VOD in general. Therefore some markets should show a higher consumption of audiovisual content coming from other EU countries. such as the Scandinavian countries and Belgium and the Netherlands269. According to the modelling their turnover is expected to increase by 740% (increasing to +880% should rapid development of macro-economic and communication facilities occur). at least as far as ARPU for SVOD is concerned.1. there are countries that share common languages/cultures. Despite this the VOD market still lags behind. DK FIN. The relative importance of pure VOD players should increase. Therefore the number of broadcasters is expected to remain stable. Table: The various Scenarios for the development of the EU VOD market – Group B 270 Macro-economic and communication facilities development Slow development Rapid development + 740% VOD turnover + 880% VOD turnover Higher exports/imports of Higher exports/imports of International audiovisual content to/from other audiovisual content to/from other Development licensing EU countries EU countries of legal and commercial practice environments Territorial + 740% VOD turnover + 880% VOD turnover licensing Notes: in every Scenario there might be an increase of the relative importance of pure VOD players. cf. NL SE) Countries of Group B are medium-sized countries that are among the largest audiovisual markets per capita. Finland and The Netherlands.2. It can substitute to local works – partially or totally – but also to US works or works of another origin (or obviously a mix of all these categories). In this Group. 121 .2. Some already have a significantly higher share of other EU films.) is that in the short run consumption on VOD (by origin) will resemble consumption in theatres. 268 This seems also to be the case for Denmark. No country of Group B has significant share of national films among all films available in theatres. The main assumption here (derived from the analysis of content made available and consumed on VOD services. All countries appear to be closely linked to at least one other EU country (if not more) in terms of the boundaries of their audiovisual market.

The development of legal and commercial practice environments has no direct impact on 271 The study foresees an increase in imports in certain markets but this does necessarily mean that imported films will substitute totally local works. cf. 122 . The main assumption here (derived from the analysis of content made available and consumed on VOD services. but with low revenue per capita for the audiovisual market in general. Economic and cultural outlooks – Group C (CZ. Table: The various Scenarios for the development of the EU VOD market – Group C271 Macro-economic and communication facilities development Slow development + 460% VOD turnover International Higher imports of audiovisual Development licensing content from other EU countries.1. of legal and commercial practice environments Territorial + 460% VOD turnover licensing Rapid development + 540% VOD turnover Higher imports of audiovisual content from other EU countries. with a growth rate of 460% (increasing to +540% should rapid development of macro-economic and communication facilities occur). Therefore the number of broadcasters among VOD service providers is expected to increase in all cases. Finally. and in the ARPU for SVOD which are also somewhat low.2. HU. They share the common feature of having fewer broadcasters among VOD service providers. According to the modelling. They are summarised in Section 3. As a result.) is that in the short run consumption on VOD (by origin) will resemble consumption in theatres. SK) Countries of Group C are transition countries of various sizes.1. It can substitute local works – partially or totally – but also US works or works of another origin (or obviously a mix of all these categories). these countries are in the process of closing the gap in terms of the development of their VOD market.1.2. international licensing could encourage an increase in the circulation of other EU audiovisual content for these countries. 3.1 and not recalled here.2. + 540% VOD turnover Notes: in every Scenario there might be an increase of the number of broadcaster among VOD service providers.The development of legal and commercial practice environments has no direct impact on VOD turnover (see Section 3. PL.1). There are some consequences of Scenarios that are common to all Member States. all these countries have a significantly higher share of films from other European countries among all films available in theatres.2. Therefore some markets should show a higher consumption of audiovisual content coming from other EU countries. This could also correspond to an increase in the turnover for distribution through satellite.

1. all three countries share the characteristic of being part of a larger linguistic territory in which at least one other country (if not more) constitutes most of the market. and Luxembourg has the same relationship to France and Germany. In all countries there are also fewer broadcasters among VOD service providers. As a result.e. Austrian consumers might consume more German films but this might have no impact on their (presumably very low) consumption of. I.g. It can substitute local works – partially or totally – but also US works or works of another origin (or obviously a mix of all these categories).1 and not recalled here.2. Ireland is closely dependent on UK audiovisual industry developments.VOD turnover (see Section 3.2.1.1). The main assumption here (derived from the analysis of content made available and consumed on VOD services. According to Screen Digest. turnover of these is expected to increase by 380% (increasing to +490% should a rapid development of macro-economic and communication facilities occur). There are some consequences of Scenarios that are common to all Member States. nothing proves that this will favour the consumption of audiovisual content coming from other EU countries. Despite this the VOD market still lags behind. Portuguese films. cf. at least as far as ARPU for SVOD is concerned.1. Table: The various Scenarios for the development of the EU VOD market – Group D273 Macro-economic and communication facilities development Slow development Rapid development Development + 380% VOD turnover + 490% VOD turnover of legal and International Higher imports of audiovisual Higher imports of audiovisual commercial licensing content from a few other EU content from a few other EU practice countries. They are summarised in Section 3. EIR. As a result a higher growth rate is expected for SVOD and VOD in general. Therefore some markets should show a higher consumption of audiovisual content coming from other EU countries. 3. e. Therefore the number of broadcasters among VOD service providers is expected to increase in all cases. for example.) is that in the short run consumption on VOD (by origin) will resemble consumption in theatres. LU) Countries of Group D have high revenue per capita for audiovisual markets.2. countries of Group D are expected to benefit from international licensing with regard to importing audiovisual content from other EU countries272. environments 272 On the other hand. Above all. 273 The study foresees an increase in imports in certain markets but this does necessarily mean that imported films will substitute totally local works.2. 123 . Economic and cultural outlooks – Group D (AU. Austria has the same relationship to Germany’s. countries.

Therefore.Territorial licensing + 380% VOD turnover + 490% VOD turnover Notes: in every Scenario there might be an increase of the number of broadcaster among VOD service providers. Development of legal and commercial practice environments Territorial + 1. these countries are in the process of closing the gap in terms of the development of their VOD market with a growth rate of 1. There are some consequences of Scenarios that are common to all Member States. According to Screen Digest. This would probably satisfy the audience but could prevent local production from developing. They are summarised in Section 3. In these emerging VOD markets US films are currently dominating the theatrical market. SL) Countries of Group E have lower revenue per capita for audiovisual markets. content.2.300% VOD turnover + 1.850% VOD turnover International Higher imports of US audiovisual Higher imports of US audiovisual licensing content.1. Table: The various Scenarios for the development of the EU VOD market – Group E Macro-economic and communication facilities development Slow development Rapid development + 1. RO.1 and not recalled here. it is assumed that it will be harder for EU audiovisual works to profit from the development of VOD. Consistently they have lower revenue for VOD markets compared to other EU markets.850% VOD turnover licensing 124 .850% should rapid development of macro-economic and communication facilities occur).1.1). which is particularly significant for SVOD.300% (increasing to +1. The development of legal and commercial practice environments has no direct impact on VOD turnover (see Section 3. Economic and cultural outlooks – Group E (PT.2. International licensing might in the end profit US films.300% VOD turnover + 1.

Economic and cultural outlooks – Group F (BU. CY. namely Bulgaria.1 and not recalled here.2. of legal and commercial practice environments Territorial + 250 % VOD turnover + 300% VOD turnover licensing Notes: The development of legal and commercial practice environments has no direct impact on VOD turnover (see Section 3.1). their VOD markets are growing at the rate of 250% (increasing to +300% should rapid development of macro-economic and communication facilities occur)274.1. 125 .1. They are summarised in Section 3.2. MT) Countries of Group F have lower revenues per capita for audiovisual markets. According to Screen Digest. In these emerging VOD markets. Table: The various Scenarios for the development of the EU VOD market – Group F Macro-economic and communication facilities development Slow development Rapid development + 250% VOD turnover + 300% VOD turnover International Higher imports of US audiovisual Higher imports of US audiovisual Development licensing content. Therefore it is assumed that it will be harder for EU audiovisual works to profit from the development of VOD.1. Cyprus and Malta.Notes: The development of legal and commercial practice environments has no direct impact on VOD turnover (see Section 3.1. GR. International licensing might in the end profit US films. LIT. They are summarised in Section 3.2. There are some consequences of Scenarios that are common to all Member States. This would probably satisfy the audience but could prevent local production from developing. There are some consequences of Scenarios that are common to all Member States.1). US films are currently dominating the theatrical market. EST. These markets can only be expected to grow at a higher pace than the EU in general. LAT.2. 274 Please note that data is missing for some countries.1 and not recalled here. content. Unfortunately comprehensive data can be found neither on the structure nor on the performance of their VOD markets.

Spain. notably video and pay-TV Other predicted developments vary according to Member State. Some predicted developments are expected to concern all Member States: − VOD turnover will increase significantly. fewer service providers controlling most of the market. Italy. Slovakia. Finland. in countries of Groups 3278 and 4279 there will be more broadcasters entering the VOD market. United Kingdom. This circulation will be greater in an environment based on international licensing − An environment based on international licensing would lead to a greater concentration of the VOD market. broadcasters will benefit from competitive advantages (VOD being bundled with other rights).e. there will be more pure VOD players entering the VOD market. Ireland. International licensing and/or a rapid development of macro-economic and communication facilities would lead to a greater increase of VOD services − EU films’ circulation will increase as VOD markets are expanding. this is especially the case when VOD markets are still in their infancy and therefore follow erratic trajectories. United Kingdom. 277 Belgium. telecommunications and cable operators bundling access and content services could also benefit from 275 France. Spain. although generally at a slower pace than the VOD turnover. Germany. In countries of Groups 1276 and 2277.2. While projecting market developments is always a risky undertaking. In the context of a rapid development of macro-economic and communication facilities. One crucial uncertainty is that in countries with a less-developed broadband infrastructure. Poland. Telecommunications operators would. and the fact that VOD services are bundled with other audiovisual services. In all cases.2 Conclusion of the outlook: impact on EU rights holders Section 3. Germany. however. i. Therefore in countries of Group 1275 the overall turnover of VOD will increase at a slower pace than in other EU countries. Netherlands. The nature of VOD service providers should also evolve in different ways according to the countries. Italy. 279 Austria. the bundling of content and access can be a marketing tool for speeding up the roll-out of broadband services. Sweden. Luxembourg. however.2 described the outlook for the development of VOD markets in the EU from both economic and cultural points of view. 278 Czech Republic. Denmark. 126 . i. to maximize the revenue from all audiovisual versions (see Section 2.1. 276 France.).3. This suggests that the future consolidated landscape of VOD markets could be radically different from the one observed during the infrastructure roll-out. Hungary. A more rapid development of macro-economic and communication facilities would accelerate the growth of VOD turnover − The number of VOD services will increase in every market.e. However in a stabilised and connected environment the competitive advantage goes to distributors that are best able to discriminate between consumers. This is notably the case for the growth of VOD turnover. Broadcasters would be favoured compared to other VOD service providers because of the economies of scale and scope attached to the marketing of films. benefit from a rapid development of macroeconomic and communication facilities − A successful VOD market would place competitive pressure on other audiovisual version markets.

the main consequences for EU rights holders that an environment based on international licensing would bring are as follows. i. while the circulation of EU content on VOD services is expected to increase in all countries. then. Netherlands. international licensing by itself. what is required is policymaking that will encourage an increase in consumer demand. Availability may sometimes create this opportunity to reach new markets. Romania. Investments in marketing are required to allow audiovisual content to be consumed on a larger scale across borders. EU audiovisual content will benefit from greater circulation: This will prove beneficial to EU rights holders because their content can be exploited more easily in other EU countries.e. 287 This can be the case especially in the smallest Member States that would be less dependent on the size of the market. Finland. However. Finally. When their market is saturated. New business practices related to the development of the internet (notably social networks) may be increasingly important in promoting such 280 France. 282 Belgium. Poland. see Section 3. Malta. Latvia. Finland. This encourages greater consolidation of service providers at EU level. Ireland. Italy. 286 Bulgaria. Greece. 127 .1). In summary. An environment based on international licensing will: − increase exports to other Member States for countries of Groups A280 and B281 − increase imports from other Member States for countries of Groups B282. they have no competitive advantage over broadcasters in selling only one content version. This is in particular due to reduced delivery costs. Sweden. Hungary. 283 Czech Republic. some rights holders will make their content available and it will be consumed in a large number of EU countries due to international licensing. This will modify vertical relationships between rights holders and service providers in that rights holders will benefit from the growth of VOD revenues (linked to a more lively VOD market). notably through a theatrical release (and related marketing spend) in that country. Lithuania. Spain. these operators have interest in bundling VOD services together with access when it helps them to win new clients. but will also be in a weaker position to negotiate their share of the VOD services’ revenues (unless rules exist requiring distributors to invest in production). however. Netherlands. Denmark. Consequently. Films only released on VOD will compete with VOD releases that have benefited from greater visibility. Sweden. Denmark. Great Britain. Luxembourg. as well as any regulatory and policy action that would favour such practice.g. C283 and D284 − favour US audiovisual content for countries of Groups E285 and F286.international licensing practises reducing the exclusivity of their TV competitors. Slovenia. Germany. Increasing numbers of VOD services available in every country287 and greater concentration of VOD service providers at EU level: A VOD market that is too fragmented prevents VOD services from reaching a critical size which would allow them to be profitable. From an economic standpoint. compared to video. Currently VOD services provide relatively higher revenues to the rights holders (e. There will of course be exceptions to this rule. Estonia. greater circulation does not necessarily imply a greater level of consumption. 281 Belgium. Slovakia. Cyprus. 284 Austria. the typology provides more accurate projections for individual countries. will not lead to significantly higher revenues for EU rights holders. 285 Portugal.

However. while VOD offers little perspective for film financing it may lead to a decline in audience figures of the major free-to-air networks. Competitive pressure put on other audiovisual version markets: VOD currently represents a low share of overall revenues for EU rights holders. promotion on the internet rarely substitutes traditional investments in advertising. Nevertheless. rights holders rely on other audiovisual version markets. Nevertheless. As a result. depending on the home countries of EU rights holders their opportunities vary in this context (see the analysis by Group of countries). leading to the decrease of the value of broadcasting rights. for example. The balance of the overall audiovisual system is fragile and the consequences of a growth of VOD revenues may in the end prove detrimental to EU rights holders. as we will see in the final conclusions. European rights holders that need to finance their new content may accept broadcasters’ offers to purchase all version distribution mandates. there may be opportunities to support rights holders in accessing new markets by encouraging them to develop and implement digital marketing strategies. Telecommunications and cable operators or VOD pure players will then face fierce competition to acquire rights. which remain crucial. Production funding which is currently based on investments made by broadcasters. In this context. may be greatly affected.success as they allow a buzz to develop – sometimes with lower marketing investment. 128 .

Chapter IV describes the acquis communautaire and steps taken by the EU regulator to encourage the development of a single market for audiovisual services (Section 4. After a brief overview of the EU policy context (in this introduction). it also analyses suggestions by the EC and various stakeholders to adapt the legal framework to the digital environment in the context of DG Information Society and Media’s and DG Market’s Reflection Document on Creative Content in a European Digital Single Market289 (hereafter “Reflection Document”). promoting cultural diversity. the European Economic and Social Committee and the Committee of the Regions. A detailed survey of the circumstances of legislative frameworks and public policies in the European Union and the Member States was conducted. 292 Communication from the Commission to the European Parliament. The country profiles resulting from this survey as well as a list of experts. The different development paths of video-on-demand markets in the EU depend to a large extent on a diverse set of international agreements. While the objectives of many of these rules and interventions are diverse (economic growth. 288 Next to the previously identified drivers of technological infrastructure and consumer demand 289 European Commission DG Information Society and DG Internal Market Reflection Document on Creative Content in a European Digital Single Market: Challenges for the Future. In doing so. The policy context – a European Digital Agenda Digital distribution across borders is considered a major opportunity for the European audiovisual sector. A Digital Agenda for Europe. European rules and regulations and national legal frameworks and support policies288. supporting the digital shift. A competitive pan-European market for creative and diverse content was one of the key objectives of Europe’s Lisbon strategy290 and its i2010 strategy to create a single European information space. The Chapter then considers structural and regulatory issues which might encourage or hinder the development of cross-border licensing activities in Europe (Section 4. policy makers and academics interviewed are included in the appendices. guaranteeing freedom of expression – to name but a few) they all shape the environment in which new video-ondemand business models emerge. Com 129 .CHAPTER IV TOWARDS A EUROPEAN DIGITAL SINGLE MARKET: THE LEGAL ENVIRONMENT Video-on-demand markets in Europe are likely to continue to grow over the next decade. 22 October 2009 (hereafter Reflection Document 2009) 290 Lisbon European Council Conclusions 23 and 24 March 2000 291 Communication from the European Commission. Brussels 19 May 2010. and a description of the legal basis for EU intervention in the audiovisual field (Section 4. The European Commission is keen to assess how policymaking can support this development and how it can further promote cross-border circulation and consumption of European audiovisual works in this emerging market.2). COM(2010) 2020 and Conclusions from the European Council adopted on 17 June 2010. This continues to be the case in relation to the new EU2020 strategy291 and the EC’s Digital Agenda for Europe292. It has consequently asked for a thorough analysis of regulatory frameworks and public policies at European Union and national levels in the context of its objective to promote a digital single market for audiovisual content. Europe 2020 – A European strategy for smart. the Council.3).1). free trade. sustainable and inclusive growth. Brussels 3 March 2010.

htm 297 Recommendation of the European Commission on collective cross-border management of copyright and related rights for legitimate online music services. September 2005 298 Case COMP/39. do some of its aspects require reform to suit new forms of usage and to improve the potential for international exploitation? − Does technological convergence affect existing copyright provisions? (2010) 245 adopted on 31 May 2010 by the 3017th Transport.europa.2003 (IFPI-Simulcasting) 301 Council Resolution of 1 March 2010 on the enforcement of intellectual property rights in the internal market. 2999th Competitiveness Council Meeting.Moreover. of 16 July 2008 OJ 2008 C 323/07 (CISAC) 300 Case COMP/C2/38014 of 8 October 2002 . 295 See stakeholder report. by granting a monopoly concerning the exploitation of creative content at territorial level. 31 May 2010 293 Communication from European agenda for culture in a globalising world COM/2007/0242 final 294 Communication from the Commission to the European Parliament. Brussels.698. The policy discussions and consultation responses surrounding the above initiatives indicate that there are diverse positions on how to best promote the creative content sector. the Online Commerce Round Table initiative295. Telecommunications and Energy Council. and also – albeit on a different level – the recent eYouguide initiative296.com/ylmcenx 130 . http://ec. Furthermore. The European Commission and the Member States are also involved in international trade negotiations in the context of the Anti-Counterfeiting Trade Agreement (ACTA)302 that aims to introduce strong international standards of copyright enforcement. innovation and the distribution of content to consumers in an increasingly international digital communications infrastructure? − And. The Council resolution on the enforcement of intellectual property rights from March 2010301 promotes an active EU policy regarding copyright enforcement and recognises the importance of intellectual property rights for creation in Europe.eu/information_society/eyouguide/index_en. the Communication on creative content online294. the Recommendation on rights management in online music297.04. if it is. the review of DG Competition concerning the Apple/iTunes case298 and the CISAC299 or IFPI300 settlements have been important recent developments linked to the EU’s ambition to create a digital single market for creative content. it is an important objective of the European agenda for culture293. Other recent initiatives that seek to increase Europe’s competitiveness in the domain of digital content include the European Commission’s Reflection Document on creative content in a digital single market. still adapted to support creation. the European Economic and Social Committee and the Committee of the Regions on creative content online in the Single Market COM(2007) 836 final. Copyright and related rights (“copyright”) and their exercise are often at the centre of this discussion. L107/58 OJEU 30. consumer access to a wide range of audiovisual works and a level playing field for new services in Europe. Online Commerce Round Table. Brussels 1 March 2010 302 See the EC’s website http://tinyurl.154 (iTunes) 299 Case COMP/C2/38. the Council. In relation to audiovisual content the following questions arise: − Is copyright. Report on Opportunities and Barriers to Online Retailing. 26 May 2009 296 See DG Information Society website for more information.

the digital shift not only raises questions regarding the exercise of copyright. audiovisual service providers as well as citizens and consumers in a challenging position.cit. There is a consensus that the protection of intellectual property rights is important to stimulate creation. In fact. however. audiovisual media service providers are looking for a legal environment that provides a level playing field and a more cost-effective copyright licensing process. In the information society. According to Nobel Prize winner Douglass North it is. 1973. the emergence of new digital services and unauthorised sharing of copyright-protected content deserves brief consideration before entering a comprehensive legal analysis of the issues. If property rights are not enforced “a discrepancy between private and social benefits or costs means that some third party or parties. In other words. Ronald Coase. without their consent. licensing and enforcement play in this debate? − How can transaction costs in the licensing acquisition process be decreased to encourage the presence of European content on – and the establishment of – pan-European services? However.− Is the exercise of copyright hindering market access in relation to new digital services. A New Economic History. From an economic perspective. pp 2-3 131 . more legal certainty seems to be sought by most stakeholders to address these challenges. and does it prevent European rights holders from making the most of an emerging international digital distribution infrastructure? − What role do copyright management. As mentioned in the recent Reflection Document303 from the European Commission: “[c]opyright is the basis for creativity”. are dedicated to the impact of property and property rights enforcement on societal well-being and economic growth. Copyright rewards creativity and investments into creation. The Rise of the Western World. will receive some of the benefits or incur some of the costs. 1 304 North Douglass. In addition. broadband take up to some degree mirrors the increase of copyright infringements online.”304 Most of North’s works. their scientific contributions fully apply to intellectual property. innovation and knowledge production in Europe. p.Thomas Robert Paul. The roll out of broadband internet services has allowed users to easily and quickly access copyrightprotected content without the authorisation of rights holders. Intellectual property rights grant rights owners the exclusive right to prevent third parties from exploiting their copyrighted work. The roll out of broadband and the proliferation of personal computers and other end devices across Europe – heralded as a significant step towards transforming Europe into an Information Society – also leaves rights holders. property is a key institution that enables economic growth. dependent on a “mechanism bringing social and private rates of return to closer parity”. The relevance of copyright enforcement in the intangible economy The relationship between the need to reward content creation. At a time when consumers are increasingly unsure about their rights when conducting e-commerce transactions the creative content sector – suffering the results of copyright infringements – is equally worried about further unbalancing the delicate ecology of audiovisual finance and creation. 303 Reflection Document 2009 op. building upon those of another Nobel Prize winner. Cambridge University Press.

p. 305 Oxford Economics. Italy.3 311 Cnet. Wave 5 308 Gfk. recorded music and software). 2010 p. This figure naturally grows when looking at all creative industry sub sectors. while in 2005 this number reached 132 million308. September 2006 309 Vivarelli Nick. Estudio de Hábitos de Consumo de Vídeo. 15. TV series. March 2009. 2006 figure includes downloading and burning. Interestingly. 2009 http://tinyurl.000 job losses in the EU310 were due to copyright infringements. The study mentioned above on the Economic Impact of Legislative Reform to Reduce Audio-visual Piracy shows that the proliferation of broadband has enabled more and more people to access audiovisual content without authorisation. Variety 30 March 2009. this number amounted to 52. p. Towards the end of March 2009 internet traffic in Sweden had reached an unprecedented peak before it suddenly fell by 30%. in 2006. one of the major impacts is the substantial increase of online copyright infringements over recent years. Final Report. Building a digital economy: The importance of creating jobs in the EU’s creative industries. Even though it is difficult to statistically link increases of internet usage with the development of online piracy306 studies indicate that unauthorised access to copyrightprotected films has grown significantly in parallel with the growth of broadband take up.Source: Oxford Economics305 While greater broadband proliferation and use of ICTs across the EU are a major progress and change the way our societies function. This sudden decrease can be linked to the closing down of illegal file sharing site “The Pirate Bay” on April 10th 2010311. According to the Motion Picture Association (MPA) the combined costs of copyright infringements online in relation to film in major European territories (UK. France. data from Sweden also seem to indicate that there is a reciprocal relationship between internet usage and copyright enforcement. in 2004. Economic Impact of Legislative Reform to Reduce Audio-visual Piracy. emails and memory sticks 306 Due to a lack of consistent data (notably over time) 307 Ipsos Mori. In Spain.com/dk88uz 132 . burning. Spain. illegal streaming. Germany) was $ 1. Consistently fewer ‘non-pirates’ state that the duration of downloading prevents them from downloading illegally. Blighty lead tough response to persistent pirates.14.2 million in 2007307. Nettraffic down on first day of Swedish anti-piracy law.9 billion in 2009309. 2007 figure includes downloading. 10 310 Terra Consultants. 44 million movies were downloaded. which suffer significantly from copyright infringements (film. While in the UK. Digital & Physical Piracy in GB.4 million film files were downloaded. France. A recent study estimated retail losses to up to € 10 billion and found that more than 185.

and therefore to only have a marginal negative impact on rights holders312. Ultimately. consumers. Copyright and Economic Theory.Today’s significant amounts of online copyright infringement disrupt the traditional economic costbenefit analysis of copyright. 4. if yes. 312 See Watt Richard. artists and the cultural and creative industries or the ICT sector – would benefit differently. this development could also impact on other IP institutions such as trademarks. the benefits of the distribution of an unauthorised copy corresponded to that of a limited release of a degraded version (implying less utility to the consumer). Potentially. Edward Elgar. the arts. what measures should be taken to decrease copyright enforcement costs? This Chapter provides a review of initiatives from Member States in this respect at a later stage. In this context the cost of copyright enforcement over the internet could increase to such a point that exclusive rights become worthless to apply. knowledge production. A downloaded film can have the same quality as a film watched on DVD and thus will not encourage users to rent DVDs or buy films on legitimate VOD sites.1 The justifications and legal basis for EU interventions in audiovisual Interventions of EU institutions in the audiovisual field are justified by legal competences conferred by the EU Treaties and the EU’s international obligations. 2000 pages 25-69. however. many interests are at stake. the on-going debate on measures to contain online copyright infringements raises the following question: is it important for the EU that this property institution is applied and. A digital unauthorised copy. whose enforcement costs are also increasing with the roll out of digital technologies. This is so because each stakeholder group – be it citizens. In the analogue environment. culture and entertainment. In these circumstances unauthorised copying was considered by some to be a means of stimulating demand in legal markets. cannot be considered as a degraded version of the original. as no quality is lost. Their objectives are diverse and include the following: − the promotion of the internal market − the implementation of competition rules − the promotion of cultural diversity and support for cultural industries − the representation of consumers’ interests − the implementation of international treaty obligations These will be reviewed in the following. This would deprive society of a key economic institution designed to stimulate creativity. Friends or Foes. the cost of enforcement will overcome its benefits. 133 . In other words. Naturally. Whether and how copyright infringements should be subject to stronger sanctions is currently debated in many Member States and by the European institutions. if nothing is done to enforce copyright at the consumer level.

the EC report “The State of the Internal Market for Services”314 identified barriers which are preventing the completion of the internal market. Page 44 317 Communication from the European Commission.5. adequate protection and remuneration for rights holders and active support for the digitisation of Europe's rich cultural heritage. whilst Article 36 provides exceptions for measures justified on various grounds including the protection of “industrial and commercial property”.2008 314 Report from the Commission to the Council and the European Parliament on the state of the internal market for services presented under the first stage of the Internal Market Strategy for Services COM/2002/0441 final 315 As shown for instance in the Eurobarometer survey 298 “Consumer protection in the Internal Market ” from October 2008 only 13% of consumers with an internet connection at home have traded cross-border via the internet.]to create a true single market for online content and services [(]i. and to shape the global governance of the internet”. services and capital is ensured in accordance with the provisions of the Treaties”.com/ybsr9xf 316 See: Monti. The principle of free movement of goods has been interpreted very widely by the European Court of Justice (ECJ). a balanced regulatory framework with clear rights regimes. sustainable and inclusive growth.12 134 . persons. Consumers also remain reluctant to engage in crossborder purchasing activities315. Report to the President of the European Commission. These barriers are still numerous and often arise from administrative burdens and legal uncertainty. In 2002.c317 t..”316 With regard to VOD the removal of legal barriers to the establishment of an internal market for online content and services is at the heart of the European Commission’s EC’s 2020 strategy317: “the Commission will work[. with high levels of trust and confidence. The Treaty furthermore establishes the freedom of establishment for nationals of Member States across the Community (Article 49 TFEU former Article 43 TEC) and Article 56 TFEU (former Article 49) prohibits restrictions on freedom to provide services. the fostering of multi-territorial licences. Mario. which states that “Europe is still a patchwork of national online markets [where] commercial and cultural content and services need to flow across borders. the lack of high-speed transmission infrastructure and the lack of digital skills.4 accessible on http://tinyurl. the lack of trust and interoperability.1. Article 3 of the Lisbon Treaty (The Treaty on European Union) states that: “the Union shall establish an internal market”. The recent Study A New Strategy for the Single Market similarly acknowledges: “A number of obstacles reduce the capacity of industry in Europe to innovate and generate value added in the digital sphere: the fragmentation of online markets.1 Internal market justifications EU intervention in the audiovisual field is primarily justified by the aim of the Community to create an internal market. This constitutes one of the fundamental objectives of the Union. compared with 7% of the general population. The internal market is defined in article 26 (2) of the Treaty on the functioning of the European Union (TFEU former article 14 TEC)313 as “an area without internal frontiers in which the free movement of goods. 9..4. p. borderless and safe EU web services and digital content markets.e. Europe 2020 – A European strategy for smart. op. ill-adapted intellectual property legislation. A similar objective is also spelled out in the EC‘s Digital Agenda for Europe. A New Strategy for the Single Market. Articles 34 and 35 prohibit restrictions on free movements and measures having an equivalent effect between Member States. 2010. this should be achieved by eliminating regulatory barriers and facilitating 313Treaty on the functioning of the European Union OJ C115. p. Many of these obstacles point to a simple cause: a lack of a Digital single market.

Interventions at EU level in the field of copyright are primarily justified by the desire to create an internal market. These articles are enforced by the European Commission and national competition authorities and courts.1.cit. Article 101 TFEU (Article 81 TEC) and Article 102 (Article 82 TEC) respectively prohibit anti-competitive agreements between undertakings and the abusive exploitation of a dominant position. The pre-eminent objective of the harmonisation of intellectual property rights is therefore neither cultural nor industrial. Therefore. shall establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the Union and for the setting up of centralised Union-wide authorisation.cit. acting in accordance with the ordinary legislative procedure. Such competition in relation to being innovative or 322 European Commission. Article 345 (former 295 TEC) also provides that EC law “shall in no way prejudice the rules in Member States governing the system of property ownership”. p. Finally. 18 135 . p.electronic payments and invoicing. p. A Digital Agenda For Europe op.12 323 See on this the Reflection Document 2009 op. p. dispute resolution and customer trust. 4.12 t. A Digital Agenda For Europe op. However the new Article 118 of the Lisbon Treaty states that: “In the context of the establishment and functioning of the internal market. These directives exist as a result of diverging national copyright rules which are considered to be detrimental to the establishment of an internal market321. op. p.2 EC competition justifications The application of competition rules also justifies EU intervention in the audiovisual sector. the European Parliament and the Council. The EC’s Reflection Document takes the view that this new legal basis could be used to justify harmonisation efforts to establish a single European copyright title that would remove territoriality inherent to the application of national copyright rules323. Intellectual property rights are considered to promote a competitive economy. Copyright is based on a philosophy of competition: by granting a monopoly right you encourage creators and investment in creation. but instead to remove barriers to trade and competition in Europe. 12 European Commission. p. it is for example legitimate to restrain other people from taking advantage of your creation by copying your work without authorisation. All seven directives319 that regulate the field of copyright protection have been based on Article 114 TFEU (former Article 95 TEC)320. 12 .12 mmunication from the European Commission.cit. More can and must be done under the current regulatory framework to weave a single market in the telecoms sector318. coordination and supervision arrangements“322. Europe 2020 – A European strategy for smart. sustainable and inclusive growth.c317 t.

New York. The impact of culture on Creativity. 2005 328 Communication from the Commission on a European agenda for culture in globalising world op. This objective was confirmed in the “European Agenda for Culture”328 in 2007. increasingly justified by cultural arguments. In post-industrial economies this notion is of particular relevance. Study for the European Commission. to promote culture as a catalyst for creativity.325. and shall ensure that Europe’s cultural heritage is safeguarded and enhanced. publishing. in particular in order to respect and to promote the diversity of its cultures”. On a par with promoting competitiveness and jobs. 2004 327 KEA. Free Culture How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity. L’économie de l’immateriel. audiovisual policymaking at EU level also aims to enhance cultural diversity. 4. Gallimard. audiovisual. in the form of accessing 324 KEA. The protection and promotion of cultural diversity has increasingly become one of the major concerns of EU audiovisual policy. For this reason intellectual property can also act as a means to restrict competition and innovation326. According to the Maastricht Treaty the European Union has to take into account the cultural consequences of its actions. Study for the European Commission. This tension between IP rules and competition rules is subject to intense regulatory and judicial scrutiny as further illustrated in Section 4. Article 167 (4) (former 151 (4)) of the Treaty provides that “the community shall take cultural aspects into account in its action under other provisions of the Treaty. In this context. directives and consultation papers from the European Commission increasingly stress the importance of copyright as a fundamental element of Europe’s cultural policy (to nurture individual creation and art) and in relation to the competitiveness of its cultural and creative industries (music. Penguin. The new Lisbon Treaty provides in Article 3 that the internal market shall respect Europe’s rich cultural and linguistic diversity. The aim of establishing a digital single market is also justified by consumer interest.cit.4.4. in addition. create market power and prevent consumers’ choice. 329 Convention on the protection and promotion of the diversity of cultural expressions. June 2009 325 Bomsel Olivier. broadcasting).1. On the other hand intellectual property rights may constitute barriers to entry. Paris 20 October 2005 136 . videogames. film. Since the ratification of the 2005 UNESCO Convention on Cultural Diversity329 European institutions have committed to support the exchange of cultural products and services and to support their cultural industries (Article 6). It is considered to be an important element in the Union’s international relations. The Economy of Culture. 4.4 Justifications based on protecting consumers European intervention in the field of audiovisual and especially in the field of digital technologies is also motivated by the aim of ensuring equal levels of consumer protection across the EU.1. Paris 2009 326 See for instance argument made by Lessig Lawrence.3 The cultural justification EU intervention in audiovisual is. which represent 3% of EU GDP and 6 million jobs in Europe327.creative is as relevant as price competition324.

p. Copyright Law in the Digital Society. and the ability to make copies of content that were as good as the original. 4. last but not least.1. and by providing protection and effective legal remedies against the circumvention of technological measures. in order to enable rights holders to be paid for the exploitation of online rights. Article 169(1)TFEU (former Article 153(1)) states that “in order to promote the interests of consumers and to ensure a high level of consumer protection. For example it implemented the 1996 WIPO treaties by broadening the field of application of the communication on the public right (introducing the right to make available). 137 .content across borders and the promotion of the right to access information.5 Justifications based on international obligations EU involvement in the audiovisual sector is. have led to the adoption of the 2001/29/EC Information Society directive in the European Union. national and content markets are becoming increasingly global. International principles established by the WIPO agreements. education and to organise themselves in order to safeguard their interests. As to authors. also based on the Union’s international competences (in trade in particular) and the need to implement international treaty obligations.2001. the Rome Convention and the two 1996 WIPO Treaties331332. as well as to promoting their right to information. The “making available” right was therefore introduced to enable rights holders to exploit their content via digital platforms. Oxford) Portland Oregon.6. 10–19. 127 ff. the EU implements international trade agreements of the World Trade Organisation (WTO) such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)333. The emergence of a digitally-networked communications infrastructure. Furthermore. (“Information Society Directive” or “Copyright Directive”) 335 On this issue see for instance Aplin Tanya. EU institutions and EU Member States are also currently taking part in the negotiations on a new Anti-Counterfeiting Trade Agreement (ACTA).” Consumer protection measures can therefore be adopted under internal market objectives. Hart Publishing. Article 3(1) of the Information Society Directive provides that: 330 Berne Convention for the Protection of Literary and Artistic Works of September 9. signed in Marrakesh. 22. safety and economic interests of consumers. 1996 and WIPO Performances and Phonograms Treaty (WPPT) adopted in Geneva on December 20. and thereby harmonised legislation to reflect technological and commercial developments which were related to the impact of digital technology. the Union shall contribute to protecting the health. the 2001 Information Society Directive334 introduced major new provisions in relation to the digital exploitation of creative content. With a view to adapting copyright to the new digital environment the directive established a right of making available. 1886 331 WIPO Copyright Treaty adopted in Geneva on December 20. the EU and its Member States are bound to international agreements and conventions such as the Berne Convention330. 1996 332 Due to the fact that copyright law is. Based on these international obligations. As mentioned before. On-demand and interactive services required the adoption of a new category of rights. 333 Agreement on Trade-Related Aspects of Intellectual Property Rights is Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization. Hence. by its very nature. In this respect it is important to consider that the EU harmonisation process is strongly governed by its international obligations. 2005 pp. such international agreements are needed to establish minimum standards of protection across borders. Morocco on 15 April 1994 334 Directive 2001/29/EC Directive on the harmonisation of certain aspects of copyright and related rights in the information society OJ L 167. for example. had made it necessary to adapt the legislative framework to enable rights holders to monetise and license new forms of usage and dissemination335.

2).2. regulations and policy interventions that aim to promote cross-border trade of audiovisual content in the EU is essential. phonogram and film producers as well as broadcasters benefit from the right to authorise or prohibit the making available of a protected work.1 Main principles governing copyright in the EU The acquis communautaire is built around four principles which are important features of the seven directives harmonising copyright and neighbouring rights legislation in the European Union. including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them.2 The community acquis in relation to cross-border licensing of audiovisual content In order to give practical advice on how to encourage the development of a single market a good understanding of the legal principles underlying the rules. This right is territorial and exclusive. It then considers actions taken by European institutions to mitigate the impact of the exercise of copyright on the functioning of the internal market and on competition (Section 4. The four principles are: − Contractual freedom – the right of authors to freely decide about the terms and conditions under which they wish to exploit their works − Exclusivity – the right to grant exclusive exploitation rights (a right linked to contractual freedom) − Territoriality – the right for the rights holder to decide on the geographic scope of a licence (a right linked to contractual freedom) − Enforcement – the right to prevent by law unauthorised exploitation of copyright protected works 138 . territoriality and the enforcement of copyright. therefore enshrine major legal principles. as well as European copyright rules. 4. These licensing practices are strongly conditioned by intellectual property rights legislation. In order to monetise these rights their use is usually licensed to numerous distributors – nationally and internationally. This section describes the community acquis related to copyright standards (Section 4.“Member States shall provide authors with the exclusive right to authorise or prohibit any communication to the public of their works. such as contractual freedom. As audiovisual rights licensing lies at the heart of cross-border trade of such content. exclusivity. Individuals and companies are granted copyrights or neighbouring rights for their creative efforts and for investments into creativity. the acquis is strongly conditioned by intellectual property rights legislation.3.3. by wire or wireless means. International agreements. For licensing is the practical implementation of rights granted to individuals or companies for their creative efforts or their investments in creativity. 4. They largely implement international norms enshrined notably in the WIPO Treaties.” Under Article 3(2) performers.1).

27. to the possibilities of television broadcasts.2006. once he/she has given or sold the rights for one territory in the EC. p. As this market fragmentation influences the way finance is raised for production. They can therefore sell or assign rights by means of a licence. These characteristics have been acknowledged specifically in relation to audiovisual content exploitation by the European Court of Justice in the Coditel II case337: “The characteristics of the cinematographic industry and of its markets in the community. after which a work falls into the public domain. The Digital Agenda for Europe also acknowledges that any new solutions to facilitate cross-border and pan-European licensing in the audiovisual sector “should preserve the contractual freedom of rights holders.2 Territoriality The exclusivity that a copyright confers upon its owner is strictly limited to the territorial boundaries of the Member State where the right is granted. but would remain free to restrict their licences to certain territories and to contractually set the level of licence fees”338 4. Therefore the European Court of Justice recognises the specificity of a sector that is subject to market fragmentation for linguistic and cultural reasons. such as to prevent. restrict or distort competition”. The European Court of Justice has confirmed this principle when considering the compatibility of territorial exclusivity with internal market and competition rules. This core principle of copyright has been enshrined in international law in Article 5(2) of the Berne Convention. 8 339 The exhaustion principle limits the rights holder’s possibility to prevent the further distribution of copyrighted goods across the internal market. for example (and a contrario). It thereby enables them to exploit the creative content for which they own the rights. 12–18 337 ECJ 6 October 1982. Such exclusive rights are a non-tangible prerogative provided by law.cit.Case 262/81 Coditel v Ciné Vog Films and others (Coditel II).1. the court clarifies that: 336 Directive 2006/116/EC of the European Parliament and of the Council of 12 December 2006 on the term of protection of copyright and certain related rights. p.1). 139 . . op. this exclusivity underlies many value-generating practices in the audiovisual industry. OJ L 372. Importantly.2.12. but they are also free not to license the use of their copyrighted work. such as versioning (see Section 2. and in the seven EU Directives dealing with copyright and related rights. In the Lagardère ruling341.1 Contractual freedom and exclusivity International copyright law grants exclusive monopoly rights to authors and/or producers of an original work.1. This entails that authors are free to exercise their rights in the way they want. para 16 338 A Digital Agenda for Europe. This principle has.340. especially those relating to dubbing and subtitling for the benefit of different language groups.4. in itself. also been confirmed with the establishment of the “exhaustion rule”339 in relation to the distribution of physical goods. They can be considered as a form of monopoly that is set for a certain period of time (in the EU 70 years after the death of the author in the case of the individual author’s right336). Rights holders would not be obliged to license for all European territories. and to the system of financing cinematographic production in Europe serve to show that an exclusive exhibition licence is not.2. the Court concludes that such specificity justifies exclusive licensing for a certain period of time.

On the basis of international law. the territorial nature of copyright “can be described as quasi-acquis communautaire”343. users of audiovisual rights are entitled to take into account the territorial scope of a given licence as well as the real usage and consumption patterns when negotiating a licensing deal. Enforcement measures adopted in the European Union reflect 340 See for instance ECJ 8 June 1971. ECJ jurisprudence as well as EC legislation. ZUM 2006. it must be emphasised that it is clear from its wording and scheme that Directive 92/100 provides for minimal harmonisation regarding rights related to copyright. Case 62/79 Coditel I. In this respect the promotion of strong enforcement measures is an integral part of EU trade policy. Those rights are therefore of a territorial nature and. the European Economic and Social Committee and the Committee of the Regions on creative content online in the Single Market. which is recognised in international law and also in the EC Treaty. pp. such as market presence. Brussels 03. There would be no point paying an extra licence fee in relation to territories not covered by the service.3 Copyright enforcement Disparities between Member States regarding copyright enforcement are seen as “prejudicial to the proper functioning of the Internal Market[…]. − The intervention of the EC regulator on enforcement is justified by the need: − − to create a level playing field and prevent distortion of competition (harmonisation) − to adapt enforcement mechanisms to the challenge of new technology (technical protection measures (TPM) and liability issues of internet intermediaries). it does not purport to detract.-8-14. Similarly. C-192/04.2. 14 July 2005.9 344 Enforcement Directive Recital 8 and Recital 9 states that disparities in copyright enforcement lead “to a weakening of the substantive law on intellectual property and to a fragmentation of the internal market in this field” and cause “a loss of confidence in the internal market in business circles. C-192/04 Lagardère para. EU intervention in this field is also triggered by the need to defend and promote Europe’s commercial interests in relation to third countries. 14 July 2005. This situation does not promote free movement within the internal market or create an environment conducive to healthy competition”344.“At the outset.2008 p. moreover. Deutsche Grammophon v. no. 18 March 1980. from the principle of the territoriality of those rights. 15-17 341 ECJ. and ECJ. Thus. with a consequent reduction in investment in innovation and creation” 345 Communication from the Commission to the European Parliament. Metro.1. Jens. They can define licensing terms in relation to local factors that may influence the success of a release. rights holders are entitled to grant licences with territorial limitation to take into account the market position of a distributor in a given territory. Case 78/70. 6 140 . available marketing spend or revenue potential. Das urheberrechtliche Territorialitätsprinzip aus Sicht des Europäischen Gemeinschaftsrechts. the Council.01.1. 46 343 See Gaster. domestic law can only penalise conduct engaged within a national territory”342. Lagardère Active Broadcast v. Document COM /2007/836 final. Société pour la Perception de la rémuneration équitable (SPRE) and Others 342 ECJ. in particular. p. paras. As a result. Harmonised enforcement of intellectual property rights is thus considered key to the success of the internal market345. 4.

and Europe’s creative industries drive economic growth and competitiveness346. Europe’s competitive position in the world is increasingly based on its ability to create and innovate. or Vaidhyanathan Siva. Penguin.7. which seeks to agree on strong international standards of copyright enforcement.1-16 (ECommerce Directive) 353 Article 8 354 Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights. a lack of copyright enforcement in Europe would put the EU in a difficult position in enforcement-related trade negotiations with countries that have a poor record in the fight against counterfeiting and copyright infringement. 2001 351 Directive 98/84/EC of the European Parliament and of the Council of 20 November 1998 on the legal protection of services based on. 2.cit. Furthermore. New York University Press. see KEA. in particular electronic commerce. The Economy of Culture.piratpartiet. 348 See the EC’s website http://tinyurl. 17. performers. in particular in relation to internet access and consumers usage of creative content. A Criminal 346 The turnover and employment of the cultural and creative sector is equivalent to the ICT sector in Europe: it amounted to €654 billion in n 2003 while ICT turnover was €541 billion in 2003. − − Towards a level playing field: harmonisation of sanctions and remedies − In order to address disparities in the field of copyright enforcement that are hindering the functioning of the internal market. intervention in Europe with regard to enforcement in the audiovisual field is equally aimed at service providers (pay-TV in relation to the Conditional Access Directive351 or internet intermediaries in relation to the E-commerce352 Directive) as well as at creators or investors in cultural goods (authors. conditional access OJ L 320.178.1998. Problems arising from strong copyright enforcement.J.1. or consisting of. O. procedures and remedies against copyright infringement. Study for the European Commission DG EAC.com/ylmcenx 349 See for instance The Pirate Party http://www. producers/publishers). Copyrights and Copywrongs – The rise of Intellectual Property and how it threatens creativity.2004 p. in particular in terms of conflicts of fundamental rights. will be addressed in Section 4. proportionate and dissuasive sanctions.16 – 25 (Enforcement Directive) 141 . 2004.54-57 352 Directive 2000/31/EC of the European Parliament and of the Council on certain legal aspects of information society services. 2000 p. in the internal market.6. OJ L 195. New York and London.11. 2005 347 Agreement on Trade-Related Aspects of Intellectual Property (TRIPs) op. As will be seen in the following Section. The European Union was instrumental in the adoption of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)347 and is currently also actively taking part in the negotiations on a new Anti-Counterfeiting Trade Agreement (ACTA)348. In this context it should be stressed that political349 and academic voices350 are increasingly questioning the validity of a strong enforcement policy. measures. p. the Copyright Directive353 and the Enforcement Directive354 require Member States to provide effective.positions taken at international trade level as the EU is a major exporter of copyright-protected content.se/international/english gaining increasing support among European citizens 350 See for instance Lawrence Lessig. 28. Free Culture. The scope of sanctions provided for in the Enforcement Directive is limited to civil sanctions.5. and to ensure equivalent levels of protection throughout the EU. New York.

The aim is that stakeholders agree on voluntary arrangements to fight illegal activities. 142 .356 The Communication establishes principles governing the European Observatory on Counterfeiting and Piracy launched by the Commission in April 2009. because of the lack of consensus on the legal basis. It encourages stakeholders to have a dialogue on counterfeiting and copyright infringement. 11 September 2009. COM/2009/467. 26. COM(2006) 168 final 356 Communication from the Commission to the Council. the European Parliament and the European Economic and Social Committee on Enhancing the enforcement of intellectual property rights in the internal market. further discussions need to take place at Council level.Sanction Directive355 should follow the adoption of the Enforcement Directive.2006. 355 Amended proposal for a directive of the European Parliament and of the Council on criminal measures aimed at ensuring the enforcement of intellectual property rights Brussels. There are currently two discussions: one on the digital sales of counterfeit products and the other on illegal downloading and uploading activities. More recently the Commission adopted a Communication on enhancing the enforcement of intellectual property rights in the internal market. However.4.

Internet intermediaries’ exemption from liability The E-Commerce Directive’s358 “safe harbour” provisions (Articles 12-14)359 protect internet intermediaries (such as access providers. 22. 361 The E-Commerce Directive. 17. November 12th 2007 p. Study on the Liability of Internet Intermediaires. self-regulatory measures such as “notice and take down procedures” for illegal content have been promoted.Enforcement and new technologies Increasingly content is protected through technical protection measures (TPM). It grants legal protection to conditional-access services which are remunerated. The Conditional Access Directive creates a level playing field essentially with regard to pay-TV services. 2000 p. Markt/2006/09/E Service Contract ETD/2006/IM/E2/69.J. search engines and other providers of information location tools. in particular electronic commerce. These activities are “mere conduit” (Article 12). which implies that the information service provider has neither knowledge of not control over the information which is transmitted or stored” see Recital 42 E-Commerce Directive. To balance this liability exemption362 with the need to enforce copyright. 360 Internet intermediaries can be defined as services whose activity “is limited to the technical process of operating and giving access to a communication network over which information made available by third parties is transmitted or temporarily stored. Internet intermediaries therefore include access providers.2001. In the online environment. essentially protecting pay-TV services against copyright infringement. It compels EU Member States to adopt a minimum level of sanctions and remedies in order to efficiently fight infringements.178.6. this activity is of mere technical. for the sole purpose of making the transmission more efficient.4-5 362 as set out in the E-Commerce Directive Article 14 (1) (b) 363 The E-Commerce Directive does not regulate notice and take down procedures. however. hosting providers. The law – which at European level is facilitated through the Conditional Access Directive – protects rights holders against the circumvention of TPMs for copyright infringement. in the internal market. hosting providers. automatic and passive nature. the 2001 Information Society Directive357 imposes an obligation on Member States to protect against the circumvention of technological protection measures. 357 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society.1-16 (ECommerce Directive) 359 The E-Commerce Directive excludes certain clearly delimited activities carried out by internet intermediaries from liability for illegal activities occurring via their services. well developed in the USA. search engines360) from being held liable for copyright infringements in a situation where they have no knowledge of the existence of illegal infringement of copyright-protected content on their infrastructure361. See also Verbiest Thiebault et al. 143 . Such procedures. These can be defeated to enable illegal access to copyright-protected content. OJ L 167.7.. does not restrict the possibility of a national court to require a service to terminate or prevent an infringement on a case-by-case basis as for instance to issue injunctions to remove illegal content or to disable access to it. Article 6 358 Directive 2000/31/EC of the European Parliament and of the Council on certain legal aspects of information society services. O. “caching (Article 13) and “hosting” (Article 14). give rights holders the ability to inform internet service providers about alleged copyright infringement on their services and to request cooperation for the termination of unauthorised use363. it encourages however selfregulation in the field (Article 16 and Recital 40). such as hyperlinks or directories.

protection of minors. we may start calling into question the territoriality of copyright protection in Europe”364.1 reviews legal rules developed at the initiative of the European Commission to facilitate rights management in the internal market.10.1989. pp. the applicable law is the law of the country where the action or service is performed. 144 . and considers the influence of the jurisprudence of the Court to promote cross-border trade. Its aim is to provide legal certainty and a level playing field for Europe’s information technology and media industries and services. 23. secondary EC legislation has established the country of origin principle and mandatory collective licensing in relation to cable retransmission. 11 365 Council Directive of 3 October 1989 on the coordination of certain provisions laid down by law. Yet there are conflicts between the territorial exercise of intellectual property rights and the principles of the free movement of goods and services across the EU. we want European content and creative industries to be able to compete on a global scale.2. 17. 364 Rudolf Strohmeier. Harmonisation relates to the law applicable to such services (the rule of the country of establishment). and to achieve their full potential in driving European competitiveness.4.2. these rules do not apply to the licensing of copyright or related rights. and product placement.2. The EU institutions have taken different steps to try to reconcile internal market objectives with copyright principles. The ECJ has developed the principle of exhaustion of rights to promote parallel imports for physical goods protected by intellectual property. 4.2. As a result the copyright territoriality principle has been questioned as an obstacle to the development of an internal market for audiovisual goods and services. especially as regards VOD: “If in the longer term.2 Actions taken to mitigate the impact of IP territoriality EU harmonisation of intellectual property has achieved much in removing national disparities in standards of protection in order to promote intra-community trade. EU legislation aimed at creating a European audiovisual internal market started with the Television Without Frontiers Directive365 in 1989. regulation or administrative action in Member States concerning the pursuit of television broadcasting activities (89/552/EEC) OJ L 298.03.2006. p. 366 Importantly. To promote cultural diversity the Directive provides: “Where practicable on-demand audiovisual services should promote the production and distribution of European works (Article 3i)”. Section 4. The “country of origin” principle is set to mitigate territoriality issues and to facilitate the emergence of a single market for television services. The country of origin principle is the core of the Directive. It harmonises rules applicable to activities such as ondemand audiovisual services to promote the free movement of such services. The Directive was then amended in June 1997 (Directive 97/36/EC). The Television Without Frontiers Directive366 (now Audiovisual Media Services Directive) introduced this principle for broadcasting services in Europe in its Article 2.1 The country of origin principle Based on the Treaty’s principle of free movement of services.2. Hence. It establishes that when a broadcasting action or service is performed in one country but received in another. commercial communication. Head of Cabinet of Commissioner Reding at Vienna EU presidency conference “Content for Competitiveness” 2.

including advertising aimed at a Swiss audience.( Directive) 370 However. without having to clear author’s rights for distribution in Switzerland. a non-linear audiovisual media service) means an audiovisual media service provided by a media service provider for the viewing of programmes at the moment chosen by the user and at his individual request on the basis of a catalogue of programmes selected by the media service provider 369 Council Directive 93/83/EC of 27 September 1993 on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission. The case illustrates that a channel can be broadcast by satellite to Switzerland.12. However the country of origin principle is not extended to the exercise of copyright and neighbouring rights. 18. SSR Decision by the Swiss Federal Court Lausanne 12 January 2010 (4A_203/2009). Therefore the existing Directive does not cover the right of making available or the right of communication to the public by audiovisual media services as defined in the Information Society and AVMS Directives. 367 Directive 2007/65/EC of the European Parliament and of the Council of 11 December 2007 amending Council Directive 89/552/EEC on the coordination of certain provisions laid down by law. in order to eliminate different national copyright rules and legal uncertainty for both rights holders and users. p. The Directive367 extends the country of origin principle to non-linear service providers (Article 1(1)g)368. Rights holders therefore remain free to choose how they wish to license371. This is to avoid the application of several national laws (all the countries of the footprint of the satellite) to one act of broadcasting. OJ L 248. See Métropole Télévision vs.2. 6. The Directive aims at coordinating rules on copyright and neighbouring rights applicable to satellite broadcasting and cable retransmission. 27-45 (Audiovisual Media Services Directive) 368 According to this article "on-demand audiovisual media service" (i. This country is also responsible for the enforcement of the rules set in the Directive. i. Audiovisual non-linear services must therefore comply with the rules of the country in which their provider is located. where the ‘injection’ of the programme-carrying signal can be located (the ‘injection right’).10. It is important to highlight that the scope of the Directive is limited to the “act of communication to the public by satellite”. 371 The recent case of the French channel M6 in Switzerland shows that cross-border broadcasting is indeed facilitated through the application of the “country of origin” principle. Satellite programmes are often encrypted so as to target specific linguistic territories for which a licence to broadcast copyright-protected content has been obtained.e. the Directive mandates the way a right should be exercised to take into account the specifics of cable retransmission rights and ease the licensing process (Article 9). regulation or administrative action in Member States concerning the pursuit of television broadcasting activities OJ 332.Article 3(d) of the revised Directive 2007/65 requires Member States to ensure that media service providers act in compliance with windows of exploitation that have been agreed upon with rights holders. The matter remains contractual between parties of a licensing arrangement. while safeguarding the general principle of copyright implementation: contractual freedom (indeed Recitals 9 and 21 specifically provide that copyright protection “is not subject to a statutory licence system”)370. The Directive establishes which copyright law is applicable to the act of satellite broadcasting. 145 . The Directive does not prohibit licensing on a territorial basis. 15–21.2.2007 p. The attempt to extend the country of origin principle to audiovisual rights management took place with the adoption of the Satellite and Cable Directive of 27 September 1993 (in Section 4.1993.e. Article 1(2)(b) of the Directive provides that a satellite broadcast amounts to a communication to the public only in the country of origin of the signal.1 “the Directive”)369.

However. Hence. the 1993 Directive is an attempt to foster the emergence of an internal market for broadcasting services. in order to safeguard technological neutrality. COM(2002) 430 final. 26 July 2002 373 European Audiovisual Observatory Iris Plus. This idea has been submitted to public consultation in the context of the Reflection Document. adult-content. 11 146 . It is supported by some stakeholders. 35-37 375 Reflection Document 2009 p.” The proponents of such legislative action take the view that the extension of the country of origin principle to online rights would support and encourage international licensing of European audiovisual content. A study carried out by the European Audiovisual Observatory shows that out of 710 European satellite channels only 290 are international. the European Consumer association. Study for the European Commission on the Impact of the Conditional Access Directive. droit d’auteur et télévision transfrontière. They grey market is therefore distinct from the black market as viewers rightfully pay a subscription to pay-TV operators and are considered as legitimate clients by the latter. 372 Report from the European Commission on the Application of Council Directive 93/83/EEC on the Coordination of Certain Rules Concerning Copyright and Rights Related to Copyright Applicable to Satellite Broadcasting and Cable Retransmission. Convergence. and minority-language channels373. while there is some level of demand for local content abroad (and the grey market is further evidence of this374) it seems that this demand remains limited. 17 376 BEUC. The reason for this is that viewers pay subscriptions in other countries. For detail on this see KEA. Nevertheless. it has been accepted by the sector so far. 2009-8 374 The “grey market” for trans-border satellite transmissions (mostly pay-TV) consists of extra territorial viewers that receive cross-border transmissions which are not licensed for the territory on which they are received. An application of the country of origin principle to the online delivery of audiovisual content? An application of the country of origin principle to online delivery of audiovisual content has been discussed as a possible legislative way forward in the Reflection Document375 with the objective to foster the circulation of audiovisual content in Europe. despite the fact that this practice appears to be growing (and therefore reflects trends of increased migration and – possibly – a growing internal market). The latter are essentially information channels. Grey markets can be considered as an intermediate case between legality and copyright infringement. CERNA. contribution to consultation on the Reflection Document 2009 p. the European Commission had to recognise in its 2002 review of the Directive372 that the country of origin principle did little to remedy market fragmentation. or not large enough to trigger multiterritory licensing between satellite operators (essentially pay-TV channels) and rights holders.” 376 − RTL Group which.In relation to the ambition of achieving an internal market for satellite broadcasting. is favourable to an extension of the SATCAB Directive for linear/simultaneous transmission on mobile and online services. This “could imply that once an online service is licensed in one EU territory […] then this licence would cover all Community territories. December 2007 pp. such as: − BEUC. which “welcomes the reflection as to whether a solution based on extension of the scope of the Satellite and Cable Directive to online delivery of audiovisual content should be used for the licensing for audiovisual content. However.

which also supports a solution based on the country of origin principle for satellite transmission. 6 379 See UK Film Council’s contribution to the consultation on the Reflection Document 2009. 9-10 382 383 Digital Europe’s contribution to the consultation on the Reflection Document p. − Hungary. − Digital Europe . the German private broadcasters association. 2 378 Cable Europe contribution to the Reflection Document p. no difference should be made between content broadcasted via satellite. Contribution to the Consultation on Reflection Document 2009 p. 56 147 . cable or terrestrial ways and online broadcasting through webcasting and simulcasting381. which supports in principle an extension. − Cable Europe. the international organisation representing some performers’ collective rights management societies. 382 However. though it puts great importance on the requirement that any new regulation should acknowledge the contractual freedom of rights holders. 8-9 380 Hungary’s contribution to the consultation on the Reflection Document p. at the stakeholder workshop on 2 June the SAA representative reported ongoing talks with the EBU on the one-stop shop licensing of authors’ rights in relation to TV programmes. the European Association of cable television operators. which also favours such a revision of the SatCab Directive. p. under the condition that it is conducted on a technology-neutral basis for both broadcasting and retransmission activities378 − the UK Film Council. It calls for precise definitions in order to guarantee legal certainty and the distinction between all the different uses that can be made through internet and rights holders. the association of European digital technology industry. However it recalls that a detailed analysis of the legal framework needs to be carried out380. The SAA believes that there is no need for a radical change in the legal environment to develop pan-European online services. which favours an extension of the country of origin principle to online distribution if “the relevant copyright act is clearly set up for the internet”. 377 RTL Group. a number of stakeholders highlight that the extension of the country of origin principle would do little to promote international licensing: − The Society of Audiovisual Authors (SAA) and Eurocinema question the adaptation of the country of origin principle to online delivery on the grounds that the application of the satellite provisions did not provide the estimated results384.commercial users or rights holders should not be obliged to license multi-territorially. 4 381 VPRT’s contribution to the consultation on the Reflection Document p. which also mention the “extension of the scope of the Satellite and Cable Directive to online delivery of audiovisual content “ as a possible solution. − VPRT. In its view. 6 Ericsson’s contribution to the consultation on the Reflection Document 384 SAA contribution to the consultation on the Reflection Document 2009 p. − GIART. as there appears to be no business case for this practice377. 5 and Eurocinema contribution p. Any future solution should therefore be non-mandatory379. and Ericsson383. which acknowledges that the provisions of the SatCab Directive have proven successful and that in case the Directive be revised it should become technology neutral. However.

2 and 4 389 ETNO contribution to the Reflection Document p. 9 of their submission to the Reflection Document) to foster multi-territory licensing. podcast and vodcasts. − The Motion Picture Association (MPA). but makes it clear that “multi-territorial rights licensing and clearance should be decided by producers” and “favours allowing the market to make pan-European arrangements if it wishes. Similarly. also points out that the adaptation of the SatCab provisions to the online delivery of audiovisual content would not necessarily lead to making licensing processes easier385. which suggests mandatory collective licensing for any 385 Aepo-Artis contribution to the Reflection Document p. but are opposed to any requirements on companies to do so”387. 9 387 CEPI contribution to the Reflection Document p. In relation to international licensing. does not specifically mention the country of origin principle. the European association of some performers’ collective rights management societies. does not take any position on this issue. Broadcasters are already in a position to negotiate multi-territory licences in the country where they are established (but in practice such licences are not sought. This would mean that linear and “broadcast-like” non-linear services (as defined by the EBU) would be available across Europe through digital services under a single licence granted in the country of establishment of the broadcaster. much more detailed and deserves some further attention: it includes the extension of the country of origin principle to all linear and nonlinear “broadcast-like” on-demand services (which cover start-over and catch up services. It recalls that the SATCAB Directive respects contractual freedom386. asking simply for “legal clarity and certainty for online media providers” and a flexible market-based licensing regime”. representing independent TV producers. without going into detail about how this should be achieved390. Their proposal391 is. 391 EBU contribution to the Reflection Document 148 . the extension of the country of origin principle to “broadcast-like” services seems to be coupled with a second idea. ETNO. The Reflection Document makes reference to the public service broadcasters (EBU). representing new media and internet companies.e. The European Coordination of Independent Producers (CEPI). The European Digital Media Association (EDIMA)388. but exclude “retail-like” VOD services) on all platforms. licensors that are in a position to grant such international licences). only calls for easing licensing processes and harmonised “regulation for multi-territory licensing”. It is difficult to understand in which way the extension of the country of origin principle to “broadcast-like services” would make the current licensing process easier or more efficient. however. It also acknowledges that rights licensing fragmentation is the matter of commercial practices rather than the effect of the present legal framework. 4 386 MPA contribution to the consultation on the Reflection Document 2009 p. representing Hollywood studios opposes an extension of the country of origin principle to the making available right. 7 388 Edima contribution to the Reflection Document p. A broadcaster would be able to clear copyright and neighbouring rights in the country where it is established with willing licensors (i. with rights holders established in this country. however it is short on concrete suggestions on the content of such legal instrument. as broadcasters mostly cater for a local or linguistic audience). the European Telecommunications Network Operators Association389. who favour an extension of the country of origin. 3 390 The company Fastweb advocates the adoption of a directive (p.− Aepo–Artis.

It would make sense to encourage the development of such licensing capabilities but it would be better to ensure that such licensing infrastructure exists in relation to all forms of digital delivery and not merely “broadcastlike” non linear services. (IFPI-Simulcasting) 394See for instance BSAC contribution to the consultation on Reflection Document 2009 395 The question of the reproduction right will be dealt with in Section 4. According to the EBU the injection principle would make less sense in relation to “retail-like” online services. Whether this is the right solution to be adopted remains to be seen. 396See for instance Peifer Karl-Nikolaus. it should be taken into account that there remain several legal and technical difficulties linked to the differences between satellite and online transmission394. with the exception of the clearance of cable retransmission rights. 1 p. 28–35 (Rental and Lending Directive) 393 Case Comp/C2/38014 of 8 October 2002 . Das Territorialitätsprinzip im Europäischen Gemeinschaftsrecht vor dem Hintergund der technischen Entwicklungen. Indeed.2006. which makes the application far more complex than for satellite transmission396. This considerably limits the impact of the proposal on rights licensing. in order to make sure that. Second. if EBU is referring to programmes for which its members own the rights as producers. but also the reproduction right395. but are rather similar to the distribution of physical copies and rental. 27. 392 Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on rental right and lending right and on certain rights related to copyright in the field of intellectual property OJ L 376. rights holders need to be assured of equal protection of. The EBU addresses this question by calling for an exception for a common-sense interpretation of the definitions of reproduction and communication to the public rights.3. There are other considerations to be taken into account when considering the option of adapting the country of origin principle to online exploitation. such as download-to-own services. The rule would also have to work alongside the decision of EC competition authorities from October 2002 in the IPFI simulcasting agreement393. The decision accepted that whilst rights clearance would take place in the country of origin (emission state).retransmission of the television programme on digital networks. 16 149 . the mere clarification of the applicable law would not make licensing easier. ZUM 2006 no. The exploitation of content on the internet not only requires the acquisition of the communication to the public right. Indeed. provided a right to communicate content to the public has been granted by a contract (or by law). their rights in any country covered by the regime to avoid encouraging a “race-to-the bottom” among VOD services to establish themselves in the territory with the lowest levels of remuneration or the weakest negotiating party. p. audiovisual producers are not yet organised to deliver such blanket licences.2. which are ruled by the Information Society Directive and the Rental and Lending Directive392. that right covers the incidental reproductions necessary for the efficient and legitimate exercising of the communication act licensed. These services cannot be assimilated to satellite transmission. Prudently the EBU suggests excluding “premium content” (a concept that remains to be defined but which in the proposal includes feature films and sports content) from the scope of its proposal.2 in more detail. First. The proposal also implies that the audiovisual industry sets up a one-stop shop capable of delivering international licences in the country of establishment of each broadcaster.12. and remuneration for. remuneration would be due to collecting societies representing record producers and performers in all countries where the simulcast signal can be received.

This Directive also provides in Article 1(4) that it should not affect measures to protect or promote cultural or linguistic diversity. the Directive has not achieved this aim in satellite broadcasting. Similarly. Finally and more importantly. Whilst it can be argued that its scope extends to rights management organisations the extension of the scope of the country of origin principle remains a difficult political proposition. it should be recalled that the matter has already been on the agenda of the European Commission in the past. it is not sure whether an adaptation of country of origin principle to VOD would yield the desired results of creating an internal market for audiovisual content.J. the Directive on services in the internal market397 (which establishes general provisions facilitating the exercise of the freedom of establishment for service providers and the free movement of services) specifically excludes audiovisual services from its scope (Article 2(2)(g)). as a result of important resistance from the audiovisual sector. 397Directive 2006/123 of 12 December 2006 on services in the internal market. O. 36 –68 150 .L 376.Moreover. to avoid unnecessary friction with the copyright community. After all. but DG Internal Market of the European Commission abandoned the idea of amending the Directive a few years ago. It is highly unlikely that merely establishing the law applicable to rights acquisition will be sufficient to create a digital single market. 27/12/2006 p. In relation to the proposal of public service broadcasters a thorough assessment concerning the impacts that such system would have on rights holders as well as on all industry players – which could not be conducted as part of the present study due to its timing and the limited scope of the EBU proposal – would be beneficial.

cable and telecommunications companies should be able to clear. The Directive does not attempt to harmonise the extent of the right to authorise. November 1990 and Directive Recital 28: Whereas. The justification to exercise the right collectively stems from the way cable works as it would in practice be impossible for cable operators to identify and negotiate with a multitude of right holders associated to programmes subject to retransmission. The Association is the sole collective rights management organisation that is mandated by some audiovisual producers at international level to negotiate and collect cable retransmission rights. It therefore again confirms the principle of contractual freedom. The Directive applies to retransmissions “of an initial transmission from another Member State” and must be “simultaneous. through the obligation to have recourse to a collecting society. whereas the authorisation right as such remains intact and only the exercise of this right is regulated to some extent. Mandatory collective rights management for the cable retransmission right thus ensures that cable operators acquire all rights necessary for cable retransmission. The scheme enables a category of users (cable operators) to acquire licences for national and international repertoires in a one-stop shop negotiation. unaltered and unabridged” (Article 1(3)). Discussion paper III/F/5363/90 – EN Brussels. The Directive establishes that the cable retransmission right cannot be exercised on an individual basis. so that the right to authorise a cable retransmission can still be assigned. Broadcasting and Copyright in the Internal Market. It intervenes in combination with local collecting societies mandated to represent local rights holders.4.2. In practical terms. whereas this Directive does not affect the exercise of moral rights. As for cable retransmission one could imagine that broadcasters. the use of original audiovisual programmes that are retransmitted on digital networks abroad. thus reducing transaction costs. for the exclusive collective exercise of the authorisation right to the extent that this is required by the special features of cable retransmission.2. through a one-stop shop solution.2 Mandatory collective licensing The 1993 SatCab Directive also aimed to promote cross-border licensing by easing the licensing processes in relation to the exercise of the cable retransmission right. but rather the way this right is exercised (Recital 28). in order to ensure that the smooth operation of contractual arrangements is not called into question by the intervention of outsiders holding rights to individual parts of the programme. The recourse to collective rights management is justified to ensure the smooth operation of contractual arrangements “to the extent that this is required by the special features of cable retransmission”. It prevents individual rights holders from causing ‘black outs’ in programme transmissions by not granting their exclusive rights for retransmission399. 151 . but must be managed through a collecting society (Article 9(1))398. In addition many national broadcasting laws often impose the obligation to retransmit broadcast programmes simultaneously on cable operators (“Must carry rule”). these provisions have led to the establishment of the Association of International Collective Management of Audiovisual Works (AGICOA). It should be noted that the Directive provides that the right should be granted contractually “unless a temporary exception is provided in the case of existing legal licence scheme” (Recital 27). European public service broadcasters also propose an extension of mandatory collective licensing to the clearance of retransmissions of television programmes on all audiovisual media services. provision should be made. 398 Sat Cab Directive Article 9 (1) 399 European Commission.

unaltered and unabridged retransmission” of a programme (Article 1(3)) 4. 19 June 2009 BUMA and STEMRA v. Present and Future of the Satellite and Cable Directive.Such an extension might achieve results in easing licensing processes. p. and keep their contractual freedom to negotiate licence terms.cit. provided rights holders set up the mechanisms to enable international licensing. 403 Hugenholtz. Chellomedia Programming. in particular SMEs that do not have the resources to license on an individual basis. which is not subject to the Directive 403. 2009-8.3 The principle of exhaustion Laid down by the European Court of Justice. 401Supreme Court of the Netherlands (Hoge Raad).. Revisited: The Past. or that are in a weak bargaining position. to organise the licensing process in a more efficient way. In its comment to the EC’s Reflection Document AGICOA notes “.. the rights holder in a territory of the European Community. European Audiovisual Observatory. A rights holder therefore cannot oppose parallel imports from goods coming from a territory where consent for exploitation has been given.2. if the means for decrypting the signal are provided to the public by the broadcasting organisation or with its consent. or with the consent of. these transmission techniques are deemed an act of primary communication to the public. the question would be how to practically manage such a system: would AGICOA or any other organisation be mandated by rights holders to grant such a licence in relation to the communication to the public and the making available rights for retransmission of television programmes? Furthermore. Supreme Court of the Netherlands (Hoge Raad). as the text applies identically to both “cable retransmission” and “the simultaneous. As a consequence. technological developments seem to have reduced the impact of the SATCAB Directive. The exhaustion principle was established by the European Court to mitigate the territoriality principle of copyright and neighbouring rights. 80 152 . Recasting copyright op. the exhaustion principle provides that once a good protected by intellectual property rights has been sold by. 400 See AGICOA submission point V. 19 June 2009 402 The Directive’s scope is limited to cable retransmission of “an initial transmission from another Member State” (Article 1(3)). Licences are still acquired on a country-bycountry basis despite the establishment of an international licensing structure”400. The Directive is applicable to the initial transmission in encrypted form (Article 1(2)(c)). the SATCAB Directive would no longer apply for new techniques of transmission of encrypted signals that are merely intended for reception by cable operators and only subsequently communicated to the public402. so that the “simulcasting” of broadcast programmes over the internet becomes subject to mandatory collective management404. In this context of digital convergence and the evolving role of cable operators (with the end of “cable retransmission”) Prof Hugenholtz has given his support to the review of the scope of the Directive. The extension could trigger a collective response from rights holders. In addition. according to the Supreme Court of the Netherlands401. However. further distribution of this good across the community cannot be prevented. p.2. Bernt.in Agicoa’s more than 25 years of existence no user has ever requested to benefit from multi-territorial licensing. 7 404 For details see IVIR. it is unclear whether this would lead to more international licensing. Iris Plus. Indeed.

18 March 1980 case 62/79. Laserdisken414. if such exercise is for the purpose of safeguarding the rights which constitute “the specific subject matter”.20). Droit d’auteur et droits voisins. public policy or public security. The abusive exercise of rights can be restricted. or the protection of industrial and commercial property. 2007. 9 April 1987 case 402/85 Bassett 413 ECJ 17 May 1988 case 158/86. With regard to the audiovisual sector. joined cases 55/80 and 57/80 MusikVertrieb Membran v. constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States. the rule is applicable only to the distribution of tangible properties on material support (a CD or a DVD). The court has therefore laid down several principles for reviewing licensing practices that would go beyond what is necessary to exercise an IP right. 6 April 1995 joined cases C-241/91 P and C-242/91 Magill) 410 ECJ 8 June 1971case 78/70 Deutsche Grammophon 411 ECJ 20 January 1981. 17 May 1988 case 158/86. on the grounds of intellectual property rights protection. Hart. It was finally codified in Article 4(2) of the Copyright Directive. 1993. the essential function of copyright relates to the ability of a rights holder to license for any showing of a film (ECJ. puts a DVD on the market in a Member State it can legally be sold in a country where the good is lawfully marketed and subject to parallel imports. 20 Oct. If the use of a right does not conform to the essential function of intellectual property rights it must take into account community rules on free movement of goods and services. historic or archaeological value. 9th ed. The “specific subject matter” is the corpus of rules of authors (and neighbouring) rights that fulfil the “essential function” of the intellectual property concerned. This is justified by the fact that encouraging parallel imports increases price competition and limits the effects of partitioning the internal market through exclusive distribution agreements. Warner Bros & Metronome v Christiansen413. However. argued that this derogation is justifiable only if the rights constitute “the specific subject matter” of the intellectual property concerned407 and the “essential function” of intellectual property rights408. or its representative.” 406 For more details on this see Charon Christophe. restrictions to the free movement of goods and services and competition rules can be justified406. 39-42 and Korah Valentine. Oxford and Portland Oregon. the exhaustion rule entails that once a rights holder. Litec 2006 pp. subject to community rules on free movement and competition409. Warner Bros 414 ECJ 12 July 2006 case C-479/04 Laserdisken ApS v Kulturministeriet. which are subject to national law. cases C-92 and C-326/92 Phill Collins para. as governed by national legislation. however. 153 .The interpretation given by the European Court of Justice of Articles 35 and 36405 TFEU illustrates that. however. The ECJ therefore distinguished between the standards (the existence) of rights. An Introductory Guide to EC Competition Law and Practice. as a result of ECJ jurisprudence. Warner Bros) and has later stated that “The specific subject matter of those rights. Bassett 412 . which insisted on the close relationship between exercise and existence (ECJ. animals or plants. Coditel I. In relation to audiovisual works. independently of exclusive distribution rights granted in the territory. para 14) 408 The ECJ held that the exercise of intellectual property rights is only justified under Treaty rules. exports or goods in transit justified on grounds of public morality. The exhaustion rule was first developed by the ECJ in the field of industrial property law (in 1976) and then extended to the trade of copyright-related goods in cases such as Deutsche Grammophon410. the protection of health and life of humans. the protection of national treasures possessing artistic. the ECJ has defined the specific subject matter as comprising representation and performance rights (ECJ. and their exercise. It does not extend to the communication to the public or 405 Article 36 states that “The provisions of Articles 34 and 35 shall not preclude prohibitions or restrictions on imports. is to ensure the protection of the moral and economic rights of their holders” (ECJ. 409 Nevertheless the limits of this distinction have been shown by the Magill decision. The ECJ has. Such prohibitions or restrictions shall not. 337 ff 407 Since 1988. pp. Musikvertrieb v Gema411. Gema 412 ECJ.

on the other. Berr. 65. No 132 April 1987. on the one hand. Alain L’avenir du droit d’auteur. In this respect the problems involved in the observance of copyright in relation to the requirements of the Treaty are not the same as those which arise in connection with literary and artistic works the placing of which at the disposal of the public is inseparable from the circulation of the material form of works. as in the case of books or records”. and on the number of showings. C. et al.422 Moreover. 421 See for instance Berr op. cit. Recital 29 states that “the question of exhaustion does not arise in the case of services and online services in particular”417. some argue that VOD services will be increasingly able to 415 Coditel I case (ECJ. in Revue du Marché Commun et de l’union européenne. 208. 1997. University of Amsterdam.. However. 420 See for instance Korah Valentine. 207211 p. Furthermore. pp. The notion of the absence of a material form of the copyright work. EIPR.66 ff 417 Information Society Directive Recital 29 418 Such as Benabou.cit. A general rule of nonexhaustion for communication to the public rights has been codified in Article 3(3) of the Information Society Directive. This different treatment of distribution and communication to the public rights is justified by the audiovisual industry’s specificities. Tjong Tjin Tai Eric. ‘Traité de droit communautaire des affaires’. legal scholars418 sometimes question the distinction between performance and reproduction rights419. in particular with regard to VOD. Parleani. Especially with regard to the emergence of new possibilities for the exploitation of audiovisual content online. op. 16-18. the Court puts forward that remuneration of a performance is dependent on the audience.cit. p. which changes every time. No. Bruylant Bruxelles. the performance rights and. G. 154 . Exhaustion and online delivery of digital works. 344 416 Jacquier S. It takes the view that this contrasts with a reproduction of a work. Korah Valentine. as the distinction between the provision of a service and a good is rather thin421. The Court distinguishes between. Mars 2009 pp. Perplexités juridiques à propos du marche commun des services. pp. Paris : Litec 1996. The Court recognises that rights holders have a legitimate interest in exploiting the different formats of their works separately. in Revue Internationale du Droit d’Auteur. n°47. Valerie. could be questioned. 108-109. p. 25 (5). which are subject to the free movement of goods rules420.making available in an intangible or dematerialised format415. Indeed. p. for which the author receives a fixed remuneration every time a copy is sold. While the principle of exhaustion does. 419 For a detailed description see for instance Jansen Astrid. 47. at present. An Introductory Guide to EC Competition Law and Practice. Françon. “Territorial exclusivity in the broadcasting market”. doubts arise about today’s appropriateness of the Court’s argumentation. the Court establishes that the ability of a rights holder to license for any showing of a film is part of the “substance” of authors’ rights in relation to audiovisual. pp. see also explications on this topic Jacquier Sarah. the intangible character of an object does not stand in the way of its qualification as a good. 447 422 Gavaldi. 13. droits voisins et droit communautaire. Droits d’auteur. which characterises a performance according to the Court. p. op. 18 March 1980 case 62/79). The ECJ excluded the application of the exhaustion rule on the exhibition of films. and cannot be limited in order to create the internal market416. 20-21. broadcasts and other performing rights in the Coditel I (or le Boucher) decision. They argue that today most of the revenues in the audiovisual industry derive from sales and rentals of DVDs. 2003. Industries de contenu: quel avenir pour les licenses territoriales.. not apply to performance rights. Intellectual property rights and the EC Competition rules. 368 May 1993. Claude J. the reproduction rights involved in physical distribution (para 12): “A cinematographic film belongs to the category of literary and artistic works made available to the public by performance which may be infinitely repeated. op. Revue Lamy du droit de l’immateriel.cit p. LLM Thesis..

Considering contributions from the audiovisual and ICT sectors to the Reflection Document. The European Commission has also restricted the territorial exercise of copyright in numerous other cases. The application of the exhaustion rule to performing rights would deprive rights holders of this possibility. “Territorial exclusivity in the broadcasting market” op. pp. Such a review is often triggered by the duration of the exclusivity granted or its scope. 17 424 See for instance Jaime Espantaleon. p. 32 (1). The ECJ and the European Commission have ruled against anti-competitive licensing practices that unjustifiably partition the market on the basis of Article 101 TFEU (former Article 81 TEC). These interventions are very effective in restricting unjustified territorial exploitation of intellectual property rights. Depriving the rights holder of such a possibility could be detrimental to investment in European productions. which prohibits the abuse of a dominant position. Exhaustion Might in European Television. E.calculate their audience through subscriptions and payments. 1989 (UIP) OJ 1989 L 226/25. OJ 1989 L 284/36. 29-42 and Jacquier S. as well as all audiovisual stakeholders. para. Furthermore. such as the UIP case or the EBU/Eurovision System case428. 155 . LLM Thesis. according to copyright specialists. As shown by our economic analysis.P. The Court of First Instance decided that such behaviour “may have the effect of restricting potential competition on the relevant market.2.1997. Commission.R. the adaptation of the exhaustion principle to the makingavailable rights could only be done through legislation.cit. Case T-504/93 Tiercé Ladbroke SA v. since it deprives each of the contracting parties of its freedom to contract directly with a third party by granting it a licence to exploit its intellectual property rights and thus to enter into competition with the other contracting parties on the relevant market”427. territorial exclusivity 423 Jansen Astrid. rights holders can only maximise their revenues and count on a return on investment if they are able to follow commercial strategies of versioning. Commission Decision 91/130/EEC of 19 February 1991 (Screensport/members of the EBU). cit.3 EU competition rules and territoriality The territorial exercise of copyright through licensing agreements may also be limited by trade and competition provisions within the EC Treaty. Nevertheless. op. 68-70 425 Coditel I. As put forward by the Reflection Document. 428 Commission Decision 89/467/EEC of 12 Jul. 2010.I.. the economic argument of the Court made in this relation is still valid today424. The “Tiercé Ladbroke” case illustrated that agreements between two or more parties to refuse another party a licence to exploit sports content within a given territory can be anti-competitive426. OJ 1991 L63/32. and Article 102 TFEU (former Article 82 TEC). The Reflection Document from October 2009 does not consider the option of extending the exhaustion of copyright to communication to the public rights. 4. 427 Tiercé Ladbroke para 157 et seq. The ECJ has justly recognised that “the owner of the copyright in a film and his assigns have a legitimate interest […] in authorising a television broadcast of the film only after it has been exhibited in cinemas for a certain period of time”425. 13 426 CFI 12 Jun. which prohibits anti-competitive agreements. Commission Decision 89/536/EEC of 15 September 1989 (Film purchases by German television stations). which facilitates the calculation of royalties according to the number of performances423. such a step is not an option.

014 (IFPI Simulcasting) Para 122 433 Case (C-403/08) – published on the ECJ’s website on 11/11/2008. see also appendices for details. 81 of the EC Treaty and Article 53 of the EEA Agreement Case COMP/C2/38. In the IFPI-Simulcasting case the European Commission recognised that the so-called simulcastagreement between music industry producers and collecting societies to grant a single multi-repertoire licence for a territory of most of the EEA countries for simulcast music licensing encouraged competition between collecting societies. QC Leisure. and the SatCab Directive. QC Leisure433 has to be mentioned. The High Court required guidance from the ECJ on several issues. OJ 1993 L 179/23. Commission Decision 2003/778/EC of 23 July 2003 (Uefa ChampionsLeague) OJ. might have an impact on the scope of the obligations which licensors are able to impose on broadcasters on sports events. linked to the interpretation of the Conditional Access Directive. 4. OJ 2008 C 323/07 (CISAC) 431 COMP/39. In the Apple iTunes case the European Commission has investigated whether the fact that Apple’s online music platform was accessible only from some EU countries does not unjustifiably partition the market431. 434 Reflection Document 2009 op.cit 156 .2. as well as Treaty rules on free movement of goods and services especially concerning conditional access devices. 2003 L 291/25. in particular whether the contractual restriction present in agreements between FAPL and broadcasters unjustifiably distort competition (Article 101 TFEU). such as the IFPI “Simulcasting” case429. The third claim is against the operators of certain UK-based pubs that have shown live FAPL matches on ART channels.4 Recent EC decisions concerning the exercise of copyright in music In the past decade the European Commission’s attempts to promote cross-border trade in creative content have primarily concentrated on music. which is expected to be seen at the end of 2011. or the CISAC Decision430. the Information Society Directive. compared to audiovisual producers. The recent Reflection Document434 from the European Commission Decision 93/403/EEC of 11 June 1993 (EBU /Eurovision System). operator of the SuperSport Channel) have brought three cases before the High Court in the UK. and more importantly on the measures which rights holders are able to take to prevent access to broadcasts in other territories. 432 Case COMP/C2/38. In this case the FAPL and its exclusive broadcast partner in Greece (NOVA. and facilitated the emergence of a single digital market432 and could therefore benefit from an exemption from competition rules.014 (IFPI-Simulcasting) 430 Commission Decision of 16 July 2008 Case COMP/C2/38. In this context the current ECJ case Football Association Premier League (FAPL) vs. despite the fact that rights clearance and management differ in this sector from the film sector insofar as sports companies are not holders of copyright per se.is also at the heart of several more recent competition cases concerning the licensing practices of collecting societies. Two claims are made against suppliers of satellite decoder cards to pubs in the UK.154 (iTunes) the investigation showed that territorial licensing was not the main reason for Apple’s partitioning of the market but rather the company’s ability to create maximum commercial returns by only entering lucrative markets and by applying a country-by-country specific pricing strategy to each of these markets. 429 Commission Decision 2003/300/EC of 8 October 2002 relating to a proceeding under Art.698). Football Association Premier League vs. which allow people to watch FAPL matches on non-Sky channels. in the context of the CAD and Treaty rules on competition. The outcome of the case.

it is nevertheless useful to briefly assess how the different services of the Commission have dealt with challenges to promote cross-border licensing in online music rights. While an important message of this report is not to confuse the business processes of the two sectors.Simulcasting case. For example. recognising. in this case a single market for the provision of inter-society administration services and a single market for the licensing of simulcasting”437. where the commercial rights are assigned to the producer (the licensing of the underlying music rights attached to an audiovisual work remain a separate issue). the CISAC Decision and the Recommendation on the Management of Online Rights in Musical Works. Several features of EC interventions in the field of online music licensing should be highlighted.014 paras 119 and 121 157 . on the one hand. by the desire to find ways to stimulate competition in the field of rights management (examples are the IFPISimulcasting and the CISAC cases). Commission Decision 2003/778/EC of 23 July 2003 (Uefa ChampionsLeague) OJ. Furthermore. as shown in the IFPI-Simulcasting case. the European Commission has clearly identified the need to facilitate rights acquisition in order to promote a digital single market. the important number of parties involved in the licensing of musical and recording rights makes the process more tedious than in audiovisual licensing. and recognises that onestop shops are a solution to the issue436. the prevalence of direct licensing in audiovisual and the importance of collective rights management in music. the Reciprocal Agreement furthers the goal of creating and sustaining a single market. 437 Case COMP/C2/38. as a way to challenge domestic segmentation. as there might be important lessons learned for online audiovisual rights. as they may nurture reflection on initiatives in the field of audiovisual online licensing. for example. 435 Commission recommendation of 18 May 2005 on collective cross-border management of copyright and related rights for legitimate online music services (2005/737/EC) OJ L 276/54.122 438 Case COMP/C2/38. in which a reciprocal agreement between collecting societies to create a one-stop shop for simulcasting licensing was under scrutiny. including concerted practices between rights management bodies to partition the rights licensing market. The Commission also acknowledged that one-stop shops increase the efficiency of rights management and reduce transaction costs438. 21. Unlike audiovisual content. the European Commission acknowledged that “by creating and encouraging competition between participating collecting societies in the EEA. 2003 L 291/25. EU authorities promote an evolution from domestic one-stop shops towards a European one. The interventions of the European Commission in the field of music is triggered. in the IFPI.Commission is the first document that clearly spells out the different specificities of each content sector.014 IFPI Simulcasting para.10. and on the other. by the wish to facilitate the acquisition and management of rights. music licensing is almost always made on a non-exclusive basis. Recent EC interventions indicate the following: First.2005 436 The UEFA case also shows that one-stop shops and collective management has been approved in relation to the management of sport rights and pan-European competition. as shown with the adoption of the 2005 Recommendation on the Management of Online Rights in Musical Works435.

This problem would not exist in film. This has been illustrated through investigations of DG Competition in Apple/iTunes. as large European companies and Hollywood majors (the stakeholders who control the most economicallyvaluable rights) will most likely continue to license on an individual basis. Commercial users of music have also expressed concerns in relation to the development of regional or pan-European rights management monopolies. but rather the rights licensing process underlying panEuropean exploitation. In this respect the recent ECinterventions in the field seem to disappoint both rights holders and users alike439.4 158 . the 2005 Recommendation favours an option where collecting societies compete on the level of services granted to rights holders (like the US model). On the other hand EC competition authorities favour a system whereby rights management organisations should compete on the level of services rather than on copyright tariffs to attract users.Second. Intended for both licensors and licensees. 2 and p. 3 440 See for instance Google’s response to the European Commission’s “issue paper” following the Round Table on opportunities and barriers to online retailing and the European Single Market p. collective approaches may be of interest to European audiovisual stakeholders who wish to collectively negotiate deals to access future pan-European digital platforms and extract better licensing terms. Users seem to be asking for blanket licences covering all the necessary rights required to operate a distribution service. This concentration in rights management is unlikely to happen in the audiovisual sector. Whilst users welcome the principle of competition between collecting societies. cost and legal uncertainty for some licensees. The European Commission seems to balance between two options: on the one hand. or whether to indirectly license titles through an aggregator or a management body. EDIMA: “ Recent developments in the market for securing licences for online audio and audiovisual are changing the landscape and raising both new challenges and opportunities for online media providers. with the risk of promoting the dominance of societies able to license the most lucrative international repertoire. as producers/distributors are entrusted with the management of rights and can therefore decide whether to directly license titles to a commercial user (such as a VOD operator). Furthermore. as well as in one-stop shopping opportunities for rights acquisitions440. The problem faced by the European Commission is that international licensing in music is only possible if rights management bodies collaborate and entrust each other with their respective repertoire. it should be highlighted that the key issue in relation to making available international offers in music is not copyright territoriality per se. the best way to encourage competition amongst music collecting societies is still to be found. ” p. for instance. the partitioning of the market is not simply a result of copyright licensing as initially sought. Potential providers such as Google (Youtube) and Apple are first and foremost interested in greater transparency as regards the availability of rights at international level. On the other hand. some of these changes have resulted in increased complexity. The value of EU films represents a significant 28% of the European audiovisual market. and may reinforce the dominant position of the society that holds the most popular catalogue of titles. which makes this catalogue 439 As states. It is primarily the consequence of a commercial decision to market copyright-protected content along territorial lines. they regret that such competition leads to a withdrawal of reciprocal representation agreements and therefore results in licensing fragmentation and increased transactions costs. Third. This forces users to seek numerous licences to be able to play all sorts of repertoire.

whilst another one would have to pay for the exclusive right of distribution? Would this decrease the value of the rights granted. a second multi-territory licence for online distribution. a second licence would be available for enabling the distribution of such films on VOD platforms in other European territories. Austria and Switzerland. thus preserving its contractual freedom. would it be acceptable to users and rights holders? It is important to note that it is already possible today for a rights holder to grant a licence for free to VOD platforms in countries where he did not land a distribution deal. 3 159 .5 A secondary multi-territory licence system? In order to enhance the Digital Single Market. next to main distribution licence(s) which would be reserved for the country(ies) of the producer(s) where cinema and other forms of distribution are generally pre-organised (primary licence). According to the services of the EC the rights holder would have to consent to this exploitation. determine its attractiveness to service providers that wish to distribute independent cinema and television productions internationally. For instance in the situation of an Austrian German-language film which would get distribution in Germany. Data from 2008 quoted in World Film Market Trends 2009. The objective of such measure would be to ensure some exposure of European films on VOD platforms in countries where the film did not land a distribution deal. As result the value of the idea remains unclear. 441 European Audiovisual Observatory. and encourage would-be distributors to operate under the secondary licensing scheme instead of acquiring “a primary licence”? Other questions relate to the geographical scope of such a licence and its management. the option of a “second multi-territory licence” has been put forward by the European Commission. 14 442 See Tender specifications of this study p.2. to a large extent. Many issues remain unclear. Who would keep track of the licences and collect revenues from it? Would the terms of the licence be fixed by law to prevent abusive practices undermining the underlying intellectual property rights in the audiovisual work? Would the licensee have a claim in the case of subsequent exploitation in the territory via a primary licence? Would such statutory licensing be compatible with international law. no distribution agreements exist442. The ability to offer a majority of these titles to potential licensees in a coordinated and efficient way will. p. One could imagine that revenue would come from revenue-sharing deals between the VOD operators. bundling all the other EU countries for which.comparable in size with the largest Hollywood major441. in general. According to the tender specifications of the present study the system would be based on the idea of a primary territorial licence and a secondary “multi-territorial” licence. and the system would not put into question territorial licensing. 4. Would the rights holder have to consent to license for free to a VOD operator. Rights holders would be encouraged to grant. which does not distinguish between primary and secondary licences? More importantly.

A less detailed suggestion of a “secondary multi-territory licence” had already been submitted to public consultation in 2008. Therefore the present study subscribes to the conclusion reached in the EC Communication on a Digital Agenda for Europe.10 (Creative Content Online Consultation) 444 Digital Agenda for Europe op. In its recently-published Digital Agenda for Europe the Commission has not put forward the idea of a “secondary licence”. At the time. on Creative Content Online in the Single Market {SEC(2007) 1710} . It clarifies. In the absence of support on such option from right holders and users alike it remains unclear how such a licensing system would operate. Rights holders should not be obliged to license for all European territories.01. the European Economic and Social Committee and the Committee of the Regions.444. This was confirmed at the workshop on the present study organised on 2 June 2010 in Brussels. no rights holders or users welcomed such idea. the Council. in the context of the publication of the EC Communication on Creative Content Online443. that any “solution should preserve the contractual freedom of rights holders. 2008 p.8 160 . however. but would remain free to restrict their licences to certain territories and to contractually set the level of licence fees”. 443Communication from the Commission to the European Parliament. 03. Brussels.cit p.

of course. While some of these are considerable. To consider them as part of this assignment would exceed its scope. Consequently. They also reflect social and cultural traditions (rating systems). − Important legal uncertainties also continue to exist regarding the licensing of audiovisual works for digital distribution (notably with regard to orphan works) or the implementation of authors’ exclusive rights (Section 4. − VAT rules differ across the EU and distort competition between audiovisual service providers. The legal survey across the EU conducted as part of this assignment (country profiles can be found in the appendices) illustrates that many regulations and policies at national level either raise additional transactions costs for cross-border trade of audiovisual works.2). other issues that influence the digital single market (e. as well as to reluctance of businesses to invest in the audiovisual sector on the one hand and to rights holders to embrace new technologies on the other hand. However true harmonisation in the field has not yet been achieved. such disparities could theoretically lead to a “race-to-the–bottom”.1).3 Legal and regulatory obstacles to cross-border licensing activities Policy debates concerning the challenges to developing a digital single market for audiovisual content in Europe primarily focus on copyright and its territorial exercise. They often do not take sufficient notice of other obstacles linked to regulations and policies that influence the ability of VOD service providers to offer international services.g. This could eventually undermine the strong rationales 161 . encouraging countries to adopt a weaker copyright enforcement regime with a view to attracting investment by service providers.3.) and impact on the take up of cross-border services. Regulations relating to content production and distribution may also influence the development of a digital single market (Section 4.1 National disparities in copyright enforcement: a threat to the digital single market? Disparities in copyright enforcement lead to fragmentation of the internal market. such as the scope of exemption from liability for internet intermediaries. In the case of VOD. and to enable local creative expression (with support to local content production and market access). They aim to ensure a diverse cultural offering reflecting Europe’s diversity.3. those related to consumer protection.4). There are.3). judicial redress. as the implementation of EU directives on copyright enforcement varies greatly at Member States’ level. etc.3. they have been identified and described in other EC policy documents. or contribute to establishing an unbalanced environment for pan-European VOD services: − Insufficient harmonisation regarding copyright enforcement can lead to legal uncertainties (Section 4. There is no common approach to several questions that determine the effectiveness of copyright enforcement. These issues are specific to the content industry and will be reviewed in the following Section. proliferation of household equipment. legal uncertainties continue to challenge the establishment of the single market. They penalise audiovisual consumption online compared to other forms of access (Section 4. 4.3. or the way to address copyright infringements at citizens’ level. and national responses to copyright infringement remain diverse.3.4. security of networks.

Belgium. This indicates that there are different conceptions across Europe concerning the level of copyright enforcement that is needed. Belgium. These Articles provide rights holders with measures to enforce their rights against infringers and intermediaries. Hungary. not all the Member States have set criminal and civil sanctions. Enforcement Directive: the main Articles of the Directive that are of relevance to tackling online copyright infringements are Articles 8. and the level of sanctions varies greatly446. Bulgaria. These disparities are of relevance as they may influence rights holders’ and/or copyright enforcement agencies’ ability to track unauthorised sharing of copyright-protected content by individuals and commercial actors.cit. 11 and 13. p 14 ff 162 . distribution and marketing of devices that allow the circumvention of technical protection measures (TPMs). dissuasive and proportionate to the potential impact of the infringing activities”. differ on the provisional or permanent character of the injunction. National implementations. Article 5 of the Directive leaves Member States free to apply appropriate sanctions to infringing activities. Finland. Lithuania. However. Italy. With regard to implementation of Articles 9 and 1. Study for the European Commission. Ireland. Article 8 provides rights holders with a right of information from commercial intermediaries in the context of proceedings. as long as they are “effective. For example. Spain. and Spain) have chosen to extend the scope of Article 4 to cover the private use of such illicit devices445. France. Latvia. Romania. Some examples: Conditional Access Directive: Article 4 prohibits commercial manufacturing. with regard to Article 8 (Recital 14). some countries apply the right to information only to infringing acts committed on a commercial scale (Finland. E-Commerce Directive: whether and how ISPs can be held liable for hosting services that enable copyright infringement differs widely across the EU. December 2007 446 For details see appendices and KEA study on the Impact of the Conditional Access Directive. however. Italy. and the appropriateness and strength of measures that need to be applied.1 Varying implementation of EC-directives EC Directives dealing with copyright enforcement are interpreted and implemented differently across the EU. The Impact of the Conditional Access Directive. and preventing the establishment of copyright heavens in the Single Market. Poland. A major difference with regard to the E-Commerce transposition can be found in the interpretation of “actual knowledge” of an ISP about the circumstances and facts suggesting illegal content or activities on its services449. Norway. while others apply it to all types of acts (France) or do not distinguish commercial or non-commercial scale at all (Estonia).for EU copyright harmonisation: the establishment of a level playing field that benefits creators and cultural/creative industries. November 2007. Sweden and UK 448 For details see appendices 449 Thibault Verbiest et al. Their implementation varies widely across the EU. Denmark. Spain and Germany). criteria to calculate damages to pay for infringing actions as set out in Article 13 or the possibility to pay lump sum payments vary considerably across the EU448. Articles 9 and 11 with the injunctions and Article 13 with damages.3. Netherlands. Greece.. CERNA. 9.1. Study on the Liability of Internet Intermediaires. Several Member States (France. as well as on the lack of implementation of some Articles of the Enforcement Directive. op. 447 Austria. Luxembourg. Malta. The 2007 review on the 445 KEA. 4. Similarly. Study for the European Commission. Portugal. in most Member States447 it is possible for judges to issue injunctive relief for rights infringement. Poland.

2009 459 Jean Yves L. Germany and Poland)451. del 15. decision of 29 June 2007 458 Tribunale di Roma. 2009 453 Tribunale di Roma. del 15. This is important as intermediaries have a role to play in limiting online copyright infringement. Denmark456 and Belgium457) hosting providers have been asked by their respective national courts to play a greater role in filtering traffic and preventing access to certain websites than in others − Some hosting providers have been held more accountable for copyright infringements on their systems than usual. some countries leave it to national courts to determine such “knowledge” and have no formal requirements of notification (Netherlands.12. Examples of landmark cases illustrate this development: − In some countries (for instance Italy453. Tribunal de Grande Instance de Paris. 22 October 2009. 436360/KG ZA 09-1809 461 Cour d’Appel de Bruxelles. as some services have in the past facilitated illegal downloading and file-sharing under the cover of internet intermediary liability exemption rules (Pirate Bay. and has made its way to the ECJ. Portugal) require formal knowledge procedures and an official notification by authorities to assume actual knowledge of a provider. Ord. 22 June 2007 460 Decision of the Amsterdam District Court. etc.12. 452 For a more detailed analysis see Strowel Alain (ed) Peer-to-Peer File Sharing and Secondary Liability in Copyright Law. Ordonnance référé. There exists important case law relating to the issue of liability of internet intermediaries (such as website operators. This can be seen as a “de facto exemption from liability of providers even if they are clearly aware of illicit activities”450.2009 dep 16. Edward Elgar Publishing. Rechtbank Amsterdam. Miniova. 22 October 2009. Only a few Member States have implemented additional notice and take down procedures (Finland. and no consensus across Europe on how to deal with intermediaries’ liability has yet emerged. 9e chambre. disparities in copyright enforcement are still important.2009 454 Decision of the Amsterdam District Court. even after harmonisation efforts at EU-level. 436360/KG ZA 09-1809 455 Rb. Ord. Germany. Brein v. 250077/HA ZA 08-1124 456 IFPI Denmark mod DMT2 A/S. Lithuania. where it is currently under consideration (after interpretations by national461 and district462 courts in Belgium) 450 Ibid. Utrecht 26 August 2009. no. 29 January 2008 457 Tribunal de Première Instance de Bruxelles. decision of 29 June 2007 163 . LJN : BK1067. LJN : BK1067. Nevertheless a review of case law shows that there are important uncertainties regarding this question. Some Member States (Spain. n° 2010/740 n° 192 Decision of 28 January 2010 462 Tribunal de Première Instance de Bruxelles. as official authorities often do not have the capacities to pursue every infringement. Moreover. no. which indicates that.12. 04/8975/a.).12. MySpace case in France459) and rejected their status as mere “caching” services (Amsterdam District Court460) − The question of whether access providers can be mandated to install filtering technology on their systems to detect peer-to-peer file sharing remains unanswered in Belgium. as courts deemed them to hold certain editorial responsibility (Italian Youtube case458. user-generated-content hosting providers) in Europe452.2009 dep 16. hosting providers. Frederiksberg Byerts kendelse. 04/8975/a. dit Lafesse v MySpace. Rechtbank Amsterdam. On the other hand. LJN BJ6008. the Netherlands454455. Rapidshare. Italy. Austria). the image of intermediaries as impartial technology service providers is questioned.implementation of the Directive showed that there are different ways of dealing with the subject across Europe.

Tribunal de Grande Instance de Paris 24 June 2009. ref. Inconsistencies in Germany exist between several rulings of lower courts. Jean Yves Lafesse et autres v Dailymotion et autres. 28 November 2005 465 Sony Music Entertainment and others v. 1 ZR 304/01 “Internet auction I”. the social networking site MySpace474 as a 463 Perathoner and others v S Joseph Societé Free and others (Tribunal de Grande Instance. decision of 29 June 2007 472 Cour d’Appel de Bruxelles. dit Lafesse v MySpace. diverging positions exist and that the question of intermediaries’ liability is far from solved.469. Jean Yves Lafesse et autres v Google Inc. the question of whether hosting providers can be considered as content editors. April 2007. 19 Octobre 2007 470 Dailymotion v Nord-Ouest production et autres. due to a rather wide interpretation of the Federal Court of Justice on ISPs monitoring duties473. there have been various contradictory decisions by the court of first instance and the court de Cassation in Paris. the court argued that website providers could not be released from liability as they were acting with intent − The question of disclosure of personal data by hosting providers is also addressed differently across Europe: while in Ireland a hosting provider was obliged to disclose the identities of alleged copyright infringers467. Tribunal de Grande Instance de Paris. “Internet auction III. thereby preventing the development of a coherent body of national case law references468. In France. 5 U 73/07. Ireland 8 July 2005 468 Federal Court of Justice (FCJ) judgement of 11 March 2004. for example. The Court of First Instance of Paris defined. France 23 May 2001 464 Polydor Ltd and others v Brown and others. 22 June 2007 164 . 9e chambre. and until recently in France. no. ref. Frederik Neij and others (Pirate Bay) District Court of Stockholm (Stockholms tingsrätt). FCJ judgement of 30. 17 April 2009 466 Koda v Lauritzen Vestre Landsret. Zadig Productions et autres v Google Inc. was answered in different ways. Uncertainties regarding the liability of access providers are illustrated by the Belgian case involving SA Scarlet (formerly Tiscali). The Brussels Court of Appeal472 asked in January 2010 the ECJ for a preliminary ruling on the questions whether such a request to install general filtering systems for all electronic communications. Paris. I – 20 U 95/07 See country profile Germany 469 In France. UK.− Regarding the liability of website operators and other users. Sweden . Afa Tribunal de grande instance de Paris. show that questions concerning internet intermediary liability are treated differently case by case in these countries. January 2008. High Court. which attracted a lot of media attention. Jean Yves L. in some cases across the EU website operators were held directly and indirectly liable for copyright infringement (for instance in France463.1. 22 June 2007. judgement of 19. OLG Düsseldorf. dit Lafesse v MySpace. In the Pirate Bay case in Sweden. judgement of 02 July 2008. in Spain this same issue was far more problematic and was referred to the European Court of Justice (see Section 4. 1 ZR 35/04. ref. 04/8975/a. In 2007 the District Court of Brussels ruled that SA Scarlet had to install filtering software on its system so as to exclude infringing peer-to-peer files471. Sweden465 and Denmark466). Ordonnance référé.3. I ZR 73/05.3) − Court decisions. n° 2010/740 n° 192 Decision of 28 January 2010 473 See country profile Germany 474 Jean Yves L. High Court of Justice Chancery Division. Examples of case law in Germany. “internet auction II”. FCJ. ref. Cour d’appel de Paris Arrêt du 6 mai 2009 471 Tribunal de Première Instance de Bruxelles. in order to detect peer-to peer activities is compatible with EC-rules. April 2008. for instance in Germany or France. Tribunal de Grande Instance Paris 15 April 2008. Et autres. OLG Hamburg. “Rapidshare IV”. and thus held liable for copyright infringements occurring on their services.470. The Court is also required to assess the injunction according to the principle of proportionality regarding the effectiveness of the requested measure. Tribunal de Grande Instance de Paris. the UK464 . judgement of 15. Denmark. 20 April 2001 467 Mi Records (Ireland) Ltd and others v Eirecom Ltd and others. Ordonnance référé. also show that. even among the different jurisdictions of one country. ref.

Afa Tribunal de grande instance de Paris. section A Arrêt du 06 mai 2009 .1. Lithuania. 23 May 2006.”477. This lack of cross-border dialogue and exchange between national copyright enforcement agencies. However. Stés Dargaud Lombard et Lucky Comics 477 European Commission. This position considerably changes the legal environment for hosting services. as the latter is more restrictive. Telecom Italia (ex Tiscali Media) c. Research conducted as part of the legal review illustrates: − Some countries478 rely on voluntary inter-industry agreements (Hungary. Jean Yves Lafesse et autres v Dailymotion et autres. it has also announced new measures to strengthen legislation on illegal file sharing. Italy481. European Charter for the Development and the take up of film online. Latvia482. Tribunal de Grande Instance Paris 15 April 2008 . 2009-2013. promises borderless content markets.. p. the Netherlands. being more than a mere host service. Slovakia) − In Germany479. Bulgaria483 governments are mediating dialogues between stakeholders to help develop legislation or agreements 475 Dailymotion v Nord-Ouest production et autres. accessible on http://tinyurl. There is little international or pan-European coordination on the implementation of European Directives that relate to copyright enforcement at national level. Member States are putting in place solutions to control individual copyright infringement. scope and focus of efforts are diverse and uncoordinated at European level. and diverse stakeholder groups concerning copyright enforcement policies contributes to the disparities and legal uncertainties. The legal uncertainties resulting from these disparate court decisions across Europe contribute to hamper the development of a digital single market for audiovisual content. government departments. 19 Octobre 2007 476 Cour de Cassation (1re Chambre Civile) 14 Janvier 2010. Zadig Productions et autres v Google Inc.com/m7rkbv 165 . distorting the internal market as well as competition in Europe. [. diverse and viable European business models for Film Online. in January 2010 the Court of Cassation476 declared the company Tiscali (Telecom Italia) liable for copyright infringements on its services.content editor rather than a hosting service (“hébergeur”) and thus deemed it liable for infringing actions. Cour d’appel de Paris 4ème chambre. Given that VOD. 4. Finland480. Estonia.3 478 For detailed information on the situation in each Member State see country profiles in appendices 479In Germany the government has been hosting an “economic dialogue for more cooperation to fight internet piracy” during 2009.3.] and to facilitate the emergence of new. In other cases475 hosting providers were exempt from liability. as the court did not recognise their status as content editors. at least theoretically. mainly because content was uploaded by the users themselves. but the scale. Likewise.2 Disparities in confronting illegal file sharing at consumer level Another important bottleneck to the development of a single digital market are the increasingly disparate solutions to tackling online copyright infringements across the EU at consumer level. See: Regierungsprogramm von CDU und CSU. Nevertheless “[…] adequate protection of copyrighted works and a close cooperation to fight piracy are urgently needed to create a win-win situation for all stakeholders. cooperation and exchange across the EU are necessary to avoid the implementation of diverse copyright enforcement regimes.

ISPs are obliged to collaborate with rights holders in providing evidence on internet copyright infringements and notifying alleged copyright infringers. One of its tasks is to propose changes in current copyright legislation. there is no certainty about how this provision would apply to copyright violations and law implementing the decree is expected for end of June 2010. In order to disclose the personal identity of subscribers to rights holders a court order is necessary. 483 In 2006 a Council on IPR Protection chaired by the Minister of Culture was established. monitor and analyse the IPR enforcement. ISPs. introduces a lighter version of the new French system. Article 3 see country profile for details. The representatives of the organiations of rights holders are invited to the meetings of the Council. This would have to be done before an administrative body depending on the Ministry of Culture. The sanction of blocking subscribers’ access to the internet has not been put into force. che modifica la direttiva 89/552/CEE del Consiglio relativa al coordinamento di determinate disposizioni legislative. The draft bill is currently being examined by the Parliament Recorded Music Association (IRMA). but could be considered in the future489. 487 The so-called HADOPI II Act introduced a system based on a newly-established administrative authority in charge of implementing the “three-strikes regime”: The authority will send three warnings to alleged infringers. 488 480 Following a series of inter-industry dialogues on the topic. Patent Office. which would examine the case and issue a resolution to remove the illegal content from Internet or block the access to the suspected website. the Finnish government is also considering the possibility of introducing a graduated response system. routes of appeal and formats of notices should be created by OFCOM and the 166 . Sofia Regional and Sofia City Courts. National Customs. for the moment. However. See country profile 484 The recent draft bill on sustainable economy proposes a new system allowing a rights owner to denounce any online infringement of his rights. ISPs are obliged to send two warning letters to alleged copyright infringers before court action against them is taken. regolamentari e amministrative degli Stati membri concernenti l'esercizio delle attività televisive" adopted on 1 March 2010. it could then report them to a court. There is special experts group within the Council which has representatives from State institutions as well as NGOs.) and to report their opinions to government level. The main task of the Council is to coordinate the IPR enforcement efforts of the different public bodies.− Spain focuses on making internet intermediaries more accountable for what happens on their systems rather than focussing on sanctioning individual users484. mechanism487 486 − France has been the first European Member State that has established a graduated response − The UK Digital Economy Act adopted in April 2010 established the basis for a graduated response system. etc.uk/acts/acts2010/ukpga_20100024_en_1 489 The “Digital Economy Act”. one of them being to order the suspension of the internet connection of the infringer. etc. and if no reaction occurs. Ministry of Economy and Energy Ministry of Interior. See country profile 481 At the beginning of 2009. A draft law is under preparation and should be submitted to the Parliament in spring 2010. − In Ireland a private agreement. See country profile 485 See country profile for details 486 Schema di Decreto Legislativo "Attuazione della Direttiva 2007/65/CE del Parlamento europeo e del Consiglio dell'11 dicembre 2007. discuss drafts to amend the IPR legislation. associations. See country profile 488 http://www. It consists of representatives of the Ministry of Justice. other Irish ISPs refused to sign such an agreement485. However. Prosecution. has been signed in which Eircom has committed to cooperate within a graduated response process.opsi. the Government created an internal Anti-audiovisual Piracy Advisory Committee (involving also some non-governmental representatives) in order to collect position papers by different operators (rights holders. TLC operators. Ministry of Finance. contains a provision (Article 3) introducing a graduated response system against copyright infringements. A code specifying the process of how to detect evidence. The draft bill still has to be voted by the Parliament. by way of an out-of-court settlement between Eircom and the Irish − The Italian law transposing the AVMS Directive (the so called “Decreto Romani” ). See country profile 482 Latvia has created a special Intellectual Property Council. The court will have the ability to decide on sanctions.gov.

3.3 Balancing copyrights with other fundamental rights Graduated response systems raise questions in relation to the exercise of individual freedom. such as limiting access to subscribers. Consequently. the Secretary of State will have the power to impose further technical obligations on ISPs. 4. the French Constitutional Council ruled that “[i]n the current state of the means of communication and given the generalised development of public online communication services and the importance of the latter for the participation in democracy and the expression of ideas and opinions. its respect of fundamental rights such as the freedom of expression and data protection. It is argued that new mechanisms to counter copyright infringements require a careful balancing act between different fundamental rights. In 2009. because they may constrain the use of the internet.1. as well as among policymakers (an example is the discussion in the European Parliament in the context of the adoption of the Telecoms Package)490. Authorisation Directive 2002/20/EC. On the other hand it must consider the fundamental rights to access to information (Article 11). (2000/C 364/01). Framework Directive 2002/21/EC. the European Parliament (EP) also held long discussions on similar questions during the revision of EU telecommunications laws (“Telecom Package”). One year after the code has come into force. 491 Charter of Fundamental Rights of the European Union. Furthermore the solution of a “graduated response” is strongly debated in the general public. Universal Service Directive 2002/22/EC and Privacy Directive 2002/58/EC. Act furthering the diffusion and protection of creation on the internet 167 . On the one hand the regulator needs to respect fundamental rights listed in the EU Charter of Fundamental Rights491 as general principles of Community law. During the overall adoption of the stakeholders. In its decision on the “Hadopi” Law of 10 June 2009. such as the fundamental right to property (Article17) – which includes intellectual property (Article 17(2)) – and the right to effective judicial protection (Article 47). Balancing the right to access information and the right to IP enforcement: By enabling the suspension or the throttling of internet connectivity graduated response mechanisms raise the question of whether internet access constitutes a fundamental right to access information (Article 11 Fundamental Rights Charter). which relates to the freedom of communication and expression (referring to Article 11 of the Declaration of the Rights of Man and the Citizen of 1789)492. as many questions arise regarding the system’s proportionality.” It therefore concluded that only a judicial authority has the power to restrict the freedom of expression of an individual and not an administrative authority.Each of these options is further outlined in the appendices. 18 December 2000 492 Decision n° 2009-580 of June 10th 2009. this right implies freedom to access such services. the protection of personal data (Article 8). which may be a major bottleneck to the establishment and development of a European market for audiovisual content. Copyright enforcement in Europe therefore seems to be increasingly disparate.J. to respect for private life (Article 7) and. conditions under which the regulator is allowed to impose restrictions to internet usage have to be considered. O. This will be examined in the following Section. as foreseen by the first version of the Hadopi law. See country profile for more details 490 Its directives are Access Directive 2002/19/EC. in particular.

is also at the heart of the current debate. after having received data on their identity from ISPs. the Copyright Directive (Article 8) and the Enforcement Directive (Article 8) on the other497. Those debates clearly illustrate the tension between the right to intellectual property and other individual rights. The judgement of the ECJ in the Promusicae case contributes to an understanding of the issues at stake495. 31. Telefónica argued that the communication of such data would only be justified under a criminal investigation. The ECJ assessed the conflict between the Directive on Privacy and Electronic Communications496 and the Directive on the Protection of Personal Data on the one hand. or whether such an obligation opposes the fundamental right of personal data protection. a condition which has not been fulfilled in the first version of the law. as well as the provisions on the effective enforcement of IP rights from the E-Commerce Directive (Article18). 494 Article 1(3) of the new Framework Directive 495 ECJ case C-275/06 on 5 February 2008 Productores de Musica de Espana v. Telefonica de Espana SAU 496 Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector OJ L 201. In the first draft law an administrative body was given the power to sanction presumed copyright infringers. It ruled that Community law neither excludes an obligation to communicate personal data in order to ensure effective protection of copyright in the context of civil law proceedings. 37–47 497 The conflict between data protection rights and IP enforcement rights was also addressed by the French Constitutional Court in its recent decision on the French Law “Création et Internet”. 10 juin 2009 sur la loi favorisant la diffusion et la protection de la création sur Internet) 168 . As a result the Spanish court asked the ECJ to issue a preliminary ruling as to whether Member States are allowed to rule that the disclosure of traffic data in civil proceedings can be restricted under Community law. The EP settled on a compromise with the Council. The question of whether ISPs can be obliged to disclose personal data to address copyright infringements. The plaintiff sought to obtain a court order in Spain against the ISP Telefónica to oblige the company to disclose data about the identity of users who allegedly were illegally sharing copyright-protected musical works through the peer-to-peer network Kazaa.Telecom Package Members of the European Parliament had to vote on measures that could impose restrictions on fundamental rights and freedoms of end-users without a prior judicial ruling493.7. The tension between data protection and copyright enforcement: In order to effectively address online copyright infringements at consumer level rights holders need to access infringers’ identities. The decision addressed the obligation of ISPs to disclose information about the identity of their clients in relation to copyright infringements. It reminded that under French law. or for the purpose of safeguarding public security and national defence. This requires cooperation with internet service providers (ISPs). access to information). The Court estimated that under data protection rules transmission of nominative private data in order to impose sanctions could only happen in the context of legal proceedings. only a judge can provide sanctions. Given exemption from liability for copyright infringements but also the need to protect personal data. As a result the new Framework Directive states that “measures may only be adopted as a result of a prior. ISPs are often not willing to disclose personal data. fair and impartial procedure”494. Citizens’ and civil society movements or consumer associations rightly stress that internet access contributes to the exercise of fundamental human rights (right to education and knowledge. (Decision n° 2009-580 DC.2002. p. nor obliges Member States to introduce such a civil law obligation 493 The debate took place in the context of the French “Hadopi” draft law in particular on the question of whether and who could take the decision to reduce or cut off internet access of consumers.

p.g. when no interaction with the programme is possible for the viewer). 2009 p. and even within. 873 501 Digital Agenda for Europe op. The question of data protection in the digital environment is also addressed in the recent Digital Agenda for Europe.13 502 See country profiles. streaming content which allows viewers to interact with the service falls under the making-available right502.to disclose information. 4. 499 Leistner Matthias. and − improvement of trust in rights management bodies.3.31-50. The sensitive question of ISPs’ liability and their obligation in relation to personal data disclosure in civil law proceedings remains unanswered at European level.2 The need to further harmonise copyright and neighbouring rights rules Next to heterogeneous copyright enforcement rules across Europe there are other issues that impede the development of a digital single market for audiovisual content. To some degree the judgement illustrates the “present disharmonised state of law”500 that results in diverging case law across. By contrast.1 The difference between broadcasting and making-available rights There are several uncertainties regarding the delineation between the broadcasting right and the making available right for some types of transmission that share the characteristics of broadcasting and on-demand services.3.cit. the UK. 23/11/1995 p. Copyright Law in the EC: status quo. In the absence of clear EU norms the Court leaves to the Member States the duty to strike the right balance498. Our survey shows that in some countries (Germany. Denmark) streaming content requires the acquisition of the broadcasting right. illustrate this. 498 Directive 95/46/EC of the European Parliament and of the Council of 24 Oct 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data OJ L 281 . in which the Commission announced a review of the EU data protection framework by the end of 2010 with a view to enhancing individuals’ confidence and strengthening their rights501. Discussions between EU bodies on the Telecoms Package. Member States. recent case law and policy perspectives. These are related to − the need to clarify the scope of the broadcasting and the making-available rights − the interaction between reproduction and making-available rights − the implementation of authors’ rights in relation to cross-border digital exploitation of audiovisual works − the easing of commercial exploitation of older and orphan works on digital platforms. as well as the “non-decision”499 of the ECJ in the Promusicae case.2. 4. in particular if the streaming service resembles a conventional broadcast (e. As the Copyright Directive does not provide for a harmonised definition of broadcasting the distinction between the two rights is not always clear in practice. Common Market Law Review 46: 847-884. p. 169 . 871 500 ibid.

Only Cable Europe suggests aggregating the right to reproduction with the digital performance right for dissemination of audiovisual works as well507. it has to be recalled that the relevant exploitation rights are assigned to the producer. ACT. With respect to audiovisual works. 851 504 Reflection Document p. MPA.2. The need to harmonise broadcasting rights across the EU has therefore been articulated by some academic commentators503.3. 2009 p. Furthermore. Legal aspects of video on demand. The producer thus has the ability to license any right to digital platforms and acts as a one-stop shop. SAA. due to the scope and focus of the present study on audiovisual rights licensing this certainly important point cannot be looked at in more detail508.3 The remuneration of authors for cross-border digital distribution of audiovisual works 503 IVIR “Recasting Copyright & related rights for the knowledge economy” op cit. in European Audiovisual Observatory. in practice. which often have to be cleared in separate transactions. 3 508 For further information on this topic see for instance Stefan Ventroni.48 170 . However. The Reflection Document states: “the licensing of musical compositions and of sound recordings is further complicated by the fact that most online forms of dissemination require the simultaneous clearance of the digital reproduction right and the “making available” right”504. Copyright Clearance and the Role of Copyright Societies. ii and Leistner Matthias. CEPI representing the audiovisual sector and not mentioning this issue at all. however always in relation to licensing musical works. 4. see also contributions to Reflection Document by EBU. as uncertainties about the necessary rights that need to be acquired in different Member States could increase transaction costs in the licensing process. Strasbourg 2007 p. The issue seems to be more problematic in relation to the clearance of music rights attached to audiovisual works. The European Commission highlights this problem but shows in its Reflection Document that this is an issue touching mainly on licensing of music rights. VOD service providers can already deal with this complexity by addressing both of these rights in their contractual arrangements with rights holders in one single act. Nokia 506 See contributions to Reflection Document by RTL Group. RTL Group.3.Eventually different practices regarding licensing for streaming services could become an obstacle to international VOD exploitation. European Audiovisual Observatory. To solve the issue the Reflection Document puts forward the option to bundle the respective rights (digital reproduction right and making-available right) to create one unitary licence in order to facilitate online rights clearance505.p. Several stakeholders506 take up this proposal. Online licensing of creative content.2.2 Reproduction right and making-available right Licensing for online distribution applies to the making-available right and the reproduction right. MPA. Copyright Law in the EC: status quo. as copies of content are made when downloading or streaming such content. recent case law and policy perspectives. Common Market Law Review 46: 847-884. 16. Nokia and contributions by FERA. contribution to the Reflection Document p. 507 Cable Europe. is sometimes complicated due to this requirement to clear both rights. and especially of music content. 5 505 Reflection Document p. Answers to the consultation by stakeholders confirm this. 4.

Cambridge University Press p. Cristian Mungiu and Emir Kusturica. Lars von Trier. as the final distributor is by law responsible for the payment to the authors for the use of their work through a collective management society. Luc Besson. In some countries film producers are required to reserve for authors a statutory right to obtain additional remuneration under the form of a “statutory royalty right” (France. Italy and Poland have quite a favourable system for authors. 195 ff 511 ibid. Authors’ remuneration for digital distribution is highly diverse across the European Union and a system that rewards European authors on equal terms for cross-border digital exploitation of their works still remains to be implemented. This means that while VOD offers a great possibility to disseminate content regardless of national boundaries. Austria). Ken Loach. In some countries (such as Spain. authors of audiovisual works collect remuneration throughout the Union in relation to cable retransmission (which has been harmonised by the Cable and Satellite Directive (93/83/EC)) and to private copying (in the 20 EU countries where a private copying remuneration system is implemented 511). The main assets of European cinema therefore lie in the creative talents of its film directors and screenwriters. However in some countries the terms of such remuneration are mandated by law509. built its reputation with the aid of an incredible amount of European talent. In principle authors benefit from a higher payment guarantee. which represent Europe’s cultural assets. Such highly creative individuals are the driving force of European cinema abroad. in the past and to this day. and opportunities that arise from digital communications and social networking. International cinema has. European cinema’s distinguished flavour is linked to its tradition of “film d’auteurs”. it fully relies on its talent base and the imagination of its individual creators to succeed. following EU harmonisation. Greece and Poland510) authors have to be remunerated for each form of exploitation. represent an important opportunity for European cinema and the world of art and culture. Unfortunately the industrial capacity of Europe’s ‘cottage’ film industry rarely does justice to the creative power of European artists. New forms of digital distribution. This opportunity needs to be turned into tangible revenues for the sector and its talent. However in most European countries authors receive a lump-sum payment for their contribution to the production but do not receive additional remuneration whatever the success of their work. The level and modalities of authors’ remuneration are agreed upon contractually with the film producer. Jacques Audiard. Italy. important disparities regarding authors’ rights in Europe prevent authors from being financially rewarded for the exploitation of their works abroad. Spain and Greece). Nevertheless the objective of establishing a single digital market needs to be as much of an opportunity for reward for talent and creators. certain exploitation rights of their works. or to enter international distribution on a large scale. on behalf of their members. It should be noted that. However. In France. Belgium. the Dardennes Brothers. European cinema is known across the world for its originality and its distinctiveness. Belgium and Bulgaria collecting societies representing audiovisual authors are contractually entitled to collect. to date. France. to name but a few. 509 In general Spain. p. Film Copyright in the European Union.The cinema industry in Europe is essentially a talent industry. the legal frameworks prevent authors from reaping the benefits of a potential internationalisation of the audiovisual market. 195 171 . a “bestseller clause” (Germany) or some type of “equitable remuneration” (Netherlands. such as Pedro Almodóvar. As European cinema cannot compete with other territories in raising finance for large production budgets. Italy. 510 For details see Kamina Pascal.

and do not find 512 http://www. without interfering with his commercial prerogative. cinematographers etc).6 172 . scriptwriters. aclarando y armonizando las disposiciones legales vigentes sobre la materia.2. 4.4 Uncertainties regarding the licensing of older and orphan works Digital distribution is an opportunity for Europe’s audiovisual sector as it can help to make available the myriad of audiovisual works that today slumber in (mostly national) audiovisual archives. the European market has little financial meaning for authors. Adopting an unwaivable equitable right to remuneration for the “making available right” would provide a solution that ensures that audiovisual authors are rewarded for their creations when they are exploited on digital platforms. Such a remuneration right only exists in Spain at present. for instance: − In France authors receive success-based remuneration via the local collecting society SACD if their works have been licensed for download-to-own or individual payment models512 society. as their reward is essentially derived from exploitation of their work in the home territory. regularizando. Such a solution would come as compensation for the transfer of the “making available right” to the producer. por el que se aprueba el texto refundido de la ley de propiedad intelectual. a few countries have adopted specific regulation to ensure that authors are paid in relation to VOD exploitation. it would enable harmonisation of the exercise of ‘making available’ rights across Europe and therefore avoid disparities in legislation that hinder the emergence of the internal market for creators (film directors. Furthermore.pdf 513 Law 23/2006.sacd. 514 GIART contribution to the Reflection Document p.In contrast. Therefore. BOE 97 of 22/04/1996. 7 July. Whether this unwaivable right to equitable remuneration should be extended to performers in audiovisual works remains open. and does not stimulate the development of works that are targeted at international audiences as there is no financial reward attached to international success. 12 April. European performers associations AEPO/ARTIS and GIART are making such a demand in their comments to the Reflection Document of the European Commission and require “the introduction of an extended or mandatory collective management system for the administration of the "making available" right of performers and the provision of an additional unwaivable right to equitable remuneration in favour of performers”514.fr/fileadmin/exploiter-oeuvre/2008/jo_VOD_150207. This system was extended to digital delivery in 2006513 − In Spain authors receive an equitable remuneration for each use of their work via their collecting − In Germany the revision of the national copyright act enables authors to transfer their rights for unknown means of exploitation and entitles them to remuneration in this regard. This right would enable the effective implementation of authors’ exclusive ‘making available’ rights that have been granted by the Information Society Directive.3. remain the exception in Europe and this disparate situation leads to the fact that authors hardly receive any remuneration from exploitation of their works in other European territories. modifying the Royal Legislative Decree 1/1996. These countries. however. This undermines the potential of an internal market for audiovisual productions.

especially the Rental and Term Directives. 516 While in the continental author’s right system (droit d’auteur) in general the initial creators of the film (director. screenwriter. etc. Therefore distributors. or where the presumption of assignment was not applied. Several stakeholders. Strasbourg 2007 p. The European Association of Film Archives (ACE) published in February 2010 a survey519 in which the presumed number of orphan 515 Chapter II outlines the long tail debate in more detail and shows how niche films (including older works) gain renewed value on digital networks. if one of the authors of a work cannot be traced the entire work cannot be commercially exploited. their consent on new forms of exploitation has to be acquired in some countries. However since the entry into force of the EC Copyright Directives. is an obstacle closely linked to the previous issue of licensing older works for digital exploitation. performers. which has recently introduced a new rule in its copyright act (Article 32c Urheberrechtsgesetz) which allows rights holders to license for unknown forms of exploitation (see profile for Germany) 518 Stefan Ventroni. In the audiovisual sector ownership of an audiovisual work is mostly shared between several rights holders (director. on the contrary. Legal aspects of video on demand. However rights clearance of older works can be problematic as there often is no legal certainty about rights for digital distribution in licensing contracts concluded before the emergence of VOD. Additionally. In particular. 517 An exception to the rule being Germany.). European Audiovisual Observatory. Copyright Clearance and the Role of Copyright Societies. This constitutes a disadvantage for the European film industry. editors. France. the director of a film is designated in all countries author or co-author of the audiovisual work. For instance in Spain the presumption of assignment was adopted under the copyright and neighbouring rights legislation in 1966. notably Germany and Spain. These issues are especially problematic for European works. However. films made before the entry into force of the 1993 SatCab Directive do not benefit from the system of presumption in every Member State. However.their way into theatres or DVD stores due to high distribution costs515. in the Anglo-Saxon Copyright system the producer is sole author of the film (in Ireland and the UK). 48 519 ACE. broadcasters and other media service providers cannot be certain of exploiting the work on the basis of rights granted in initial contracts. at this moment the real scope of the problem is not yet clear. Next to being a great commercial opportunity for the European audiovisual sector. digital distribution can help increase cultural diversity. Often older contracts are silent or vague in relation to who holds rights for new kinds of distribution. The issue of so-called “orphan works”. screenwriters. in Belgium this was done in 1994. Frankfurt/Brussels 29 March 2010 173 . Results of the Survey on Orphan Works 2009/10. In the audiovisual sector. in European Audiovisual Observatory. and might have to renegotiate them. editor516. as Hollywood studios are almost always the rights holders themselves and can more easily adapt contracts. which are copyrighted works where it is either difficult or impossible to find rights holders518. Ireland and the UK had to include the director as author of an audiovisual work in their legal provisions. As a result. but the initial authors vest their exploitation rights to the producer by contractual agreements for a determined period (presumption of assignment).) are granted authorship or co-authorship of a film. had already foreseen the copyright transfer to the benefit of film producers in its copyright legislation of 1957. as provisions in their national legislations are such that contracts do not apply for unknown forms of use at the time the contract has been concluded517. renegotiation of contracts increases licensing costs. ask for remedies to give archive material a new lease of life. legal uncertainties can arise for situations in which contractual agreements between producers and different authors are not clear. such as European Film Archives. etc.

524 See country profile Hungary for details 525 See country profile Romania for details. the ACE survey reveals that approximately 100. that “there are very few audiovisual works that are truly orphaned520”. The collecting societies are able to collect royalties and monies on behalf of all rights holders. basis526. They ask for legislative reform (a mandatory exception to the 2001 Copyright Directive or a legally binding stand-alone-instrument)522.000 of the presumed orphan works could be made available via Europeana or the European Film Gateway if “a pragmatic or legal solution for rights clearing would exist”521. there are different solutions to address this issue in the different Member States: − The Scandinavian countries (Denmark. Sweden and Finland)523 have set up a system of “extended collective licensing” to encourage agreements between users and collecting societies that represent a substantial number of rights holders in a defined category of works. The Scandinavian system enables thus a one-stop shop for all rights. five-year (non-transactional.works in 24 archives in Europe amounts to around 225. Nevertheless. domestic or foreign. In Scandinavia. − The German Publishing Industry also intended to introduce a similar system on a voluntary − Recently. 526 See country profiles 527 Reflection Document p. however it has been dropped by the Parliament. March 2010 523 For details see country profiles. Do any of these approaches have the potential to be applied across EU Member States? Looking at the specificities of the Scandinavian system it remains to be tested whether extended collective licensing would be adaptable to other countries. after a due diligence search of the rights holder. the UK included provisions in the draft “Digital Economy Act” to introduce such a system. compulsory) licence to use orphan works (HPO)524. It encompasses nonrepresented rights holders in that specific category. mainly due to resistance by photographers’ associations. Results of the Survey on Orphan Works 2009/10. 174 . 14 f.1 522 ACE. which is not the case in other European countries where users would 520 see submission to the Reflection Document 2009 p.000 (21% of the total number of films in archives). − In Romania. If these have not been claimed for five years. In its recent Reflection Document the European Commission is also considering the idea of promoting such a system across Europe527. they are used for special public welfare programmes. − In Hungary. a draft bill considers introducing mandatory collective management for orphan works525. the system is based on collecting societies that represent all rights holders for all rights. users can obtain from the Hungarian Patent Office a non-exclusive. The European Federation of Audiovisual Directors (FERA) mentions. however. At the moment. 9 521 Ibid p. This issue requires further investigation.

As part of the initiative an expert group drafted a report on “Digital Preservation. In its Digital Agenda for Europe the European Commission announced that it will “propose a Directive on orphan works by 2010”534. Orphan Works.5 Transparency and governance rules for rights management societies 528 See country profiles Sweden.2009 534 European Commission. In response to these claims the European Commission recently published a communication on “Copyright in the Knowledge Economy”533 in which the issue of orphan works is addressed. and Out-of-print works”530. archives. In general. given the legally non-binding character of the memorandum on orphan works532. and then acquire the different licences from different societies. the system applies only to some fields of use. rights holders and collecting societies at national level.. the results remain to be seen. the application of such a system in Europe looks more feasible on a country-by-country basis. signed on 4 June 2008 532 Ibid 533 Communication from the Commission.2. A Digital Agenda for Europe. the online transfer of texts via libraries. 19. The main problem identified is the lack of common search criteria for rights holders to facilitate a cross-border usage of these rights. Finland and Denmark 529 See country profile for details 530 i2010: Digital Libraries High Level Expert Group – Copyright Subgroup. such as the reproduction for educational use. Even on such a basis it requires a complete reform of existing systems and supposes a strong commitment of all participants. COM(2009) 532 final. Besides the idea of extended collective licensing. there have already been other efforts by the European Commission to address this issue in the context of the i2010: Digital Libraries Initiative. Furthermore. adopted at the third meeting on 18.) signed a memorandum of understanding531 to establish due diligence guidelines that help deal with orphan works and to encourage the development of identification tools. public service broadcasting and retransmission of broadcasts528. Developments in Scandinavia indicate that agreements are difficult to reach and that there is not much demand for such licences. It is not clear yet whether the scope of this legislative proposal will extend to orphan works in audiovisual. “Report on Digital Preservation. However. film associations etc. 4.3.have to first conclude agreements with different collecting societies for the same rights. different stakeholders involved in digital content dissemination (libraries. 9 175 . p. film institutes. Copyright in the Knowledge Economy. Only in Denmark recent changes in the law have made it possible to apply the system in an unspecified manner to all rights. as it requires the establishment of inter-professional agreements between users. The extended licensing systems in Sweden and Finland do not apply for the moment for any kind of online exploitation of audiovisual works.10. artists. Furthermore. and Out-of-Print Works. Selected Implementation Issues”.2007 531 Memorandum of Understanding on orphan works. Orphan Works. Therefore the question arises whether the system would also be as successful for rights to digital retransmission of audiovisual works. In Denmark an extended collective licensing agreement was reached only for the use of interactive services with the Danish public broadcasters529.4.

Creativity comes at price The role of collecting societies. The EC indeed will propose a framework Directive on collective rights management in the course of 2010537. Iris special. It remains to be seen how the proposed Directive would integrate those issues. organised in Brussels on 23 April 2010 by DG Internal Market and Services. Strasbourg 2009 176 . older works. Such collective organisations can have different structures (informal.cit p. Collecting societies and stakeholders in general agreed that harmonising transparency rules at European level would benefit rights clearance and reinforce trust in collective management. 9 538 For details on the different obligations of collecting societies see EAO. collective management structures might play an important role in the future digital distribution of orphan works. In the intangible economy. In this context a public hearing was organised by DG Internal Market in April 2010 on collective rights management. The collective management of rights in Europe – The Quest for Efficiency. collecting society) and objectives (to negotiate and/or identify rights holders. The question of an eventual harmonisation of the conditions on acquiring licences and the tariffs to be applied has also been raised during the hearing. as it proposes convenience to users that do not have to track down individual rights holders for licensing purposes536. to collect remuneration and/or to administrate rights). Digital Agenda for Europe. However. and works from producers and distributors that individually do not have the resources to license multiple digital platform operators across the world. business structures. The myriad of SMEs producing the majority of European works will have little choice but to organise themselves on a collective basis in order to access digital distribution platforms. This is not the case in the music sector. In a digital market rights management societies can play a crucial role in remedying territorial fragmentation and enabling access to a wide range of copyright-protected works by establishing international one-stop shop systems (for instance through reciprocal representation agreements). in the audiovisual sector collective management takes place in relation to the cable retransmission right. the licensing of musical works or private copying. users (whether broadcasters. and call for a legal framework at European level that would enhance governance and transparency of such organisations when they operate as collective licensing bodies (as regards music licensing in particular). In this context. study for the European Parliament. However some collecting societies felt that national specificities would need to be taken into account. 535 See contributions to the public hearing on collective rights management. Collective rights management enables rights holders and users to jointly decrease transaction costs.The major characteristic of the audiovisual licensing process is that rights are managed on an individual basis. rights management is an increasingly important feature of many value-generating activities. The question of enhancing the governance and transparency of collective rights management is quoted as a key action of the Commission’s Digital agenda for Europe. July 2006 537 European Commission. cable operators or digital media providers535) highlight the importance of rights bodies to ease licensing processes. It is a way to administer certain rights. op. their essential role is however always the same: they create a point of access to establish licensing terms with potential users. where licensing occurs more often with the help of collective management societies. in particular those related to cultural and social obligations of some collecting societies in their Member State538. 536 KEA. Indeed.

Financial information should be prepared and disclosed in accordance with high-quality standards of accounting. 4. supervision and monitoring are usually entrusted to public authorities. A disclosure requirement should not.3. Ireland. page 87. The question of enhancing the governance and transparency of collective rights management is also quoted as a key action of the Commission’s Digital agenda for Europe. The EC will propose a framework Directive on collective rights management in the course of 2010541. democratisation and transparency in relation to the management of copyright and neighbouring rights by collective management societies has been achieved and. 9 177 . Annual external audits should be conducted to objectively assure members. the UK) both in respect to transparency requirements and to supervision by external authorities. most societies are subject to basic transparency rules and required to make public their annual report and accounts. Accountability and supervision standards are set out in national legislation. − Collecting societies are subject in all EU countries to the jurisdiction of the competent competition authorities as regards the possible infringement of competition rules540. timely and cost efficient access to relevant information by users. The collective management of rights in Europe.3 The complex and discriminatory VAT regime 539 European Parliament resolution on a Community framework for collective management societies in the field of copyright and neighbouring rights (2002/2274(INI)) 540 For a detailed overview of national provisions see KEA study. three years following the adoption of this resolution.In relation to how rights management organisations are governed. In these countries. It is central to the members’ ability to exercise control as well as to maintain the confidence of users. Finland. − In general collecting societies are subject to less stringent legislative rules in Northern Europe (Scandinavian countries. control exercised by members and users as well as common practice. if not. op. In these countries. 541 European Commission. to take additional measures” (indent N° 61). a strong disclosure requirement would promote real transparency. This would be in line with the Resolution from the European Parliament adopted by unanimity on 15 January 2004539 calling on the European Commission “to examine. that the financial statement fairly represents the financial position and performance of the society.cit p. Channels for disseminating information should provide for equal. accountability of collecting societies is usually a matter for the society’s own statutes. The financial information should distinguish the different rights subject to management and the related management costs. however. Disclosure improves the public understanding of the structure and the activities of societies. place unreasonable burdens on societies. Digital Agenda for Europe. whether the desired harmonisation. However. The content of this directive remains to be clarified. The external auditor should be accountable to the members. The level of requirements imposed on collecting societies for their operations varies across Member States. as well as users. − Central European countries and Southern European countries are characterised by more detailed legislative provisions covering many aspects of the functioning of collecting societies.

on the other hand. which include the accessing and downloading of music.6% 21. in particular electronic commerce. often penalising new exploitation windows543. Moreover. European Audiovisual Observatory. are exempt 547 Services provided by public radio and television are exempt 548 Services provided by public radio and television are exempt 178 . In general. They therefore can be subject to reduced VAT rates. in the Internal market. However. the standard VAT rate applies for VOD services. 2007 p. Radio and broadcasting services. Situation at 1st May 2010 545 Only for pay or digital radio and television broadcasting 546 Public radio and television broadcasting. ranging from 15% to 25% in the EU.7. The Impact of EC Law on the Taxation of the European Audiovisual Industry IRIS Plus.5% 20% 15% 21% 21% 15% 25% 10% 545 or 21% 12% 20% 546 Exemption or 20% 25% 19% 20% 547 10% 16% 5.178. “VAT Rates Applied in the Member States of the European Community”. are not considered electronically-supplied services even when related content is transmitted over the internet. and are sometimes different to those applied to other content versions. This can slow down the development of VOD in Europe and distort the single market. 7 544 Source: Commission Document. taxation rates differ across the EU (see table below). excluding those of commercial nature. even within one Member State VAT rates can differ between VOD services transmitting over the internet and VOD services transmitting over IPTV: The “e-commerce VAT” Directive542 provides that “electronically supplied services”. as for the moment (according to EU rules) the place of taxation for electronically-supplied services is the place where the supplier is established. The same audiovisual product can therefore be subject to different levels of taxation depending on the transmission method. DOC/2137/2007. O.5% 13. Overview on Taxes on VOD services in Europe544 VAT rates applicable to VOD VAT rates applicable to VAT rates applicable to services (over the internet) pay-TV/cable TV services cinema entrance Austria Belgium Bulgaria Czech Republic Denmark Germany Estonia Greece Spain France Ireland Italy Cyprus Latvia Lithuania Luxembourg Hungary 20% 21% 20% 20% 25% 19% 20% 21% 16% 19. while VOD services over the internet are subject to standard rates (see table below). As a consequence. films and online video games.5% 10% 15% 21% 21% 3% 25% 542 Directive 2000/31/EC of the European Parliament and of the Council on certain legal aspects of information society services. This can lead to a situation where VOD services over IPTV are subject to reduced rates. in many countries cinema admissions and television broadcasting are also subject to reduced rates (see table below). 17.J.VAT rates for VOD vary across Europe depending on the different transmission methods for VOD. can only be taxed on a standard rate. 2000 (E-commerce VAT Directive) 543 Hasan Bermek.5% 21 % 20% 15% 21% 21% 3% and 15% 548 Exemption or 25% 10% 6% 20% 10% 25% 7% 20% 10% 7% 5.

This might have an impact on the distribution of VOD platforms across Europe (both Amazon and EBay are based in Luxembourg due to a low VAT rate of 15% for instance). This potential distortion therefore seems to be solved for the future. support policies and the digital shift Audiovisual works reflect and transmit different national cultures. Berlin on 26 November 2004 554 The WTO Uruguay trade negotiations illustrated the great importance that many countries put on cultural diversity in the audiovisual sector and highlighted the tensions this can cause in relation to the promotion of trade liberalisation. EU policy encourages co-operation between Member States. They have established a variety of mechanisms (both financial and regulatory) to support production and distribution of audiovisual content. as of 1st January 2015.4 National audiovisual content regulations.5% During interviews some commentators raised the point that there may be VAT issues in relation to different levels of taxation as regards business-to-consumer transactions of VOD platforms across Member States. and if necessary supplements or supports endeavours to promote cultural diversity. President of the European Commission. Member States and regions remain the driving force behind policies that support film. of its diverse literary. on "Europe and Culture" at the Berliner Konferenz für europäische Kulturpolitik. artistic and popular traditions”553. new rules will apply to B2C services under which the place of supply of electronically-supplied services will be the place where the customer resides551.Malta Netherlands Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom 18% 19% 22% 20% 19% 20% 19% 22% 25% 17. the cultural sector and the creative industries. However. excluding those of commercial nature. to enable the expression of local stories and to promote the development of a sustainable audiovisual sector. but providing electronic services to the EU.3.5% 5% 6% 7% 5% 9% 8.5% 18% 19% 7% and 22% 20% 19% 20% 549 Exemption or 19% 22% 25% 17. As regards service providers established in a non-EU country. are exempt 550 Article 45 VAT Directive 551 Change to Article 58 of the VAT Directive by Directive 2008/8/EC of 12 February 2008 amending Directive 2006/112/EC as regards the place of supply of services Article 5(1) 552 Change to Article 58 by Directive 2008/8/ EC Article 2(1) 553 Speech by José Manuel Barroso. 549 Public radio and TV broadcasting. Such mechanisms address market deficiencies linked to language segmentation in a global entertainment market which is mostly dominated by Hollywood productions554. these rules have already been applied since 1 January 2010552. 179 . of its multiplicity of histories and of languages. However. “Europe’s true “cultural identity” is made of its different heritages. 4. Stakeholders feared possible market distortions due to the fact that electronicallysupplied services are taxed on the basis of the supplier’s country of establishment550.5% 19% 8% 6% 17.

g. broadcasting. developing common descriptive criteria for national ratings. has the lowest average rating – allowing most of the films to be viewed by a very broad audience – the UK and Ireland have a comparably high average rating – allowing many films for an adult audience only. the rating processes are associated with administrative costs in each Member State558. ratings not only vary between countries. While France. VOD. 555 KEA. While the remit to establish ratings remains at national level for important cultural and moral reasons.kijkwijzer. if a film was to be cleared for different age groups in different countries this could have an effect on potential cross-border marketing synergies. as they incur additional transaction and legal costs due to the need to integrate territory-specific age-control and geo-blocking technologies. While most countries rate films separately for each distribution type the Netherlands maintain a system (the NICAM System)556 in which a uniform rating of content across all distribution platforms takes place. given that VOD is growing in importance. 4. ratings might also become more prevalent for VOD services in other countries. Empirical Study on the Practice of the Rating of Films op. television. p. The introduction of a similar system is currently under consideration in the Czech Republic557.The following Section considers the impact of such national interventions on the establishment of a single market for European digital content and the development of digital distribution. video. they also often vary between different forms of distribution (theatre. May 2003 556 The NICAM system is further explained at http://www. most of the Member States do not rate films separately for VOD distribution. In practice.) in one country. – such as NICAM in the Netherlands) and territories (such as PEGI in the games sector) can be solutions in this context559. DVD. standardisation of ratings through different media. rating systems for VOD do not pose a great obstacle to the internal market as different national requirements can be dealt with by technological solutions.cit. page 116 180 . as well as promoting standards that apply to several version markets (cinema. as the film would have to be marketed to different target groups. through ratings and evening watersheds) to supporting cultural diversity by promoting local content production. etc.3. Rating diversity555 reflects different underlying moral considerations regarding issues such as violence or sexual exposure across Europe. the use of similar age categories. 13 559 Ibid. However. Apart from Romania. Moreover. Slovakia and the UK. for example.com/ybfgdtc 558 KEA.1 Film rating systems in the EU and VOD Diverse rating and classification systems across Europe could potentially be an obstacle to the development of a single market for VOD. Empirical Study on the Practice of the Rating of Films Distributed in Cinemas Television DVD and Videocassettes in the EU and EEA Member States. In film and television. The objectives of such interventions range from protecting children from harmful content (e.4. there may be some room for harmonisation in order to decrease transaction costs of pan-European VOD services: As illustrated in KEA’s study on rating practices for the European Commission. Furthermore. Bulgaria. European Commission. Nevertheless they constitute obstacles for VOD service providers that wish to exploit content internationally.nl 557 See Czech Ministry of Culture website http://tinyurl. etc.

In practice. in relation to VOD in general. Austria). for example. Germany. With time. In relation to the digital single market. However the survey and our interviews suggest that in many EU Member States VOD distribution windows are gradually shifting to approximately four months after theatrical release. such provisions can still render management of VOD platforms more complicated by increasing transaction costs and limiting cross-border marketing efficiencies. Germany. Additionally release patterns also have an impact on the total turnover of all audiovisual version markets. which ultimately challenges the rationale behind international exploitation. can impact on the ability of VOD platforms to efficiently release a film in multiple territories at a time by increasing transaction costs. Bulgaria) media release windows are regulated by law or by inter-industry agreements. However. However. in most countries. the position and duration of a VOD window in relation to other exploitation windows will influence a VOD operator’s ability to create revenues. It is recommended to introduce more 181 . to a large extent. legislation and film funding can also promote the take up of new release windows (as has recently been illustrated by moving the French VOD window up).3.4. Such legislations and support can make experimentation with new distribution strategies difficult. Films that have limited theatrical releases due to market access problems (lack of available screens).2 Different release windows An audiovisual work’s exploitation often follows different release patterns in different territories. Austria. rather than giving individual rights holders the freedom to adapt their strategies to their needs. every adaptation of a release strategy for an individual film would require a legislative change. and if sufficient cross-border demand for VOD really exists. determine the ability of legal VOD offers to compete with illegal offers. insufficient marketing spend or poor box office results should be allowed to hit VOD exploitation sooner. In addition other countries sometimes only grant film production support to recipients if they follow certain exploitation patterns (Slovakia. a more homogenous exploitation chronology would most likely develop due to increased international ambitions of rights holders. in some Member States (France. France. The duration of each of the exploitation windows is. regulated through inter-industry agreements between different stakeholders. different release obligations across the EU can be adhered to by VOD platforms that wish to make available a film internationally. Spain. Specific details for each country can be found in the appendices. by using geo-blocking techniques. Arguably. diverging release patterns across Member States. It seems likely that rights holders will continue to push for limiting the time span between theatrical and VOD releases. Moreover. which might benefit independent releases that did not succeed in theatrical exhibition. Moreover geo-blocking essentially maintains territorial exploitation and versioning. Spain. Film support is linked to the need to release a film in a theatre first. as well as potential investments into VOD. The availability of new releases on VOD platforms will. On the other hand. day-and-date with DVD releases.4. A more homogenous environment emerges. which may be influenced by national regulations and support policies. As distribution strategies of works are increasingly adapted to the needs of individual films (an example is the previously-mentioned Alice in Wonderland) it is questionable whether legislators should mandate strict rules regarding the duration and chronology of exploitation windows.

564 Operators of digital platforms have to make payments of 1. 563 See table in appendices providing an overview of contribution obligations of the different participants in the film exploitation chain. Portugal. the restrictions made on the economic freedom of television operators being justified by reasons of general interest. Slovakia. the Spanish Supreme Court. see country profile Poland for details 182 . these players contribute to an audiovisual fund. p.4.5% of the revenue earned on fees from access to TV programmes broadcast or re-transmitted on the digital platform to the Polish Film Institute. There are also a number of Member States which oblige broadcasting organisations (often public service broadcasters) and (more rarely) telecommunications operators to contribute to the financing of audiovisual production. social and economic reasons and establish tax incentives to attract finance to the sector. It also shows countries where.3. Poland. which authorises Member States to provide such a system. Article 19. Germany. and such obligations are planned 560 Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law. Slovakia566 and Romania567. Regarding VOD services. 561 As VOD develops its market share governments may be inclined to involve providers of VOD services in the complex system of audiovisual production finance. film-funding institutions – which already receive support through financing obligations of traditional audiovisual industry stakeholders in several countries562 – may also receive support from VOD providers in the future. as amended by Directive 97/36/EC of the European Parliament and of the Council of 30 June 1997.flexibility in the implementation of windows in order to take into consideration different scenarios and interests at stake. 562 Our survey showed that France. through taxation systems. The supreme court asked whether the Spanish implementation of the TWF Directive (which obliges television operators to earmark 5% of their operating revenue for the funding of European cinematographic films for television. with 60% of that funding reserved for the production of films of which the original language is one of the official languages of Spain) conformed to community rules. contributions are mandatory in Poland564. the Netherlands. 561 In this respect. regulation or administrative action in Member States concerning the pursuit of television broadcasting activities (OJ 1989 L 298. French-speaking Belgium. They usually apply to exhibitors. Such an obligation is validated by EU regulation since 1989 with the adoption of the Television Without Frontiers Directive560.3 Contributions to audiovisual production finance and market access across the EU Public support for the audiovisual sector in Europe usually takes two forms: on the one hand there are several financial and fiscal measures to support content creation and distribution. Stakeholders’ contributions to public film funds are in many countries in general either organised by law or by professional agreements and can be mandatory or voluntary563. Sweden have such obligations in place. asked in the context of an action brought by the Spanish Union of commercial Televisions (UTECA) for a preliminary ruling from the ECJ. Cinematography Act of 30 June 2005. The ECJ in Case C-222/07 of March 2009 found that the Spanish rules did conform to Community law. Nevertheless different countries oblige different stakeholders to make a contribution. Romania. Germany565. Czech Republic. Member States spend significant public resources on funding audiovisual production for cultural. For example. 4. distributors and broadcasters. and on the other hand there are content quotas and other obligations to promote or monitor the share of European content across different distribution channels (in particular on television and to a certain extent also on VOD). Articles 3 and 12. 23). Contributions to audiovisual production finance Funding audiovisual production is very capital-intensive.

in France and Czech Republic.8% of their yearly net revenue. the Netherlands.cit. Similarly to broadcasters’ obligations to promote European works on television. it is expected570 that the implementation of the Directive will be varied in this respect571. to the financial contribution made by such services to the production and rights acquisition of European works or to the share and/or prominence of European works in the catalogue of programmes offered by the on-demand audiovisual media service. or to invest at least 1% of its programming budget to the production or purchase of European works (Article 7 of draft law)572.” 570 As transposition of the Directive is not complete in all Member States. General in this context means that the laws do not include specifications or quotas concerning how to promote EU works on non-linear services. See country profile for details. Belgium Flemish Community and the Netherlands have implemented “general” obligations to promote European works on non-linear services. Czech Republic. VOD providers have to contribute 3% of the price charged for downloaded films to the audiovisual film fund. Ireland (incomplete) 571 References can be found in the country profiles in the appendices 183 . − Bulgaria. and the potential development of international licensing. 568 Directive 2007/65/EC op. The promotion of European works online The Audiovisual Media Services Directive568 (AVMSD) extends the rules on the promotion of European works to digital distribution platforms (Article 3i) “where practicable and by appropriate means”569. However. of 1. France. Article 66a. − Latvia intends to monitor the share of EU works on non-linear platforms. on the services’ website and in promotional magazines sent to subscribers.000. the UK. − The UK. 565 Film Funding Act (Filmförderungsgesetz). Romania. if their yearly net revenues exceed €50. These disparities in treatment of VOD as regards their financing obligations could have an important effect on the roll out of VOD across Member States. 566 Article 28 of the Law on the Audiovisual Fond establishes that audiovisual distributors (including VOD providers) have to contribute 1% of their annual revenue to the fund. Sweden. Slovakia. These rules regarding the share of EU works on video on demand platforms are meant to promote a diverse offer across the EU and enhance cultural diversity. Moreover. Given the freedom to establish a VOD company in any EU Member State. Finland. − Belgium (French Community) requires that non-linear services “attractively present” EU works on their Electronic Programme Guides. where practicable and by appropriate means. precise details could not be obtained. but do not exist in other EU Member States. 567 According to the Articles 13-17 of the Cinematographic Act. Belgium. Portugal. Luxembourg (incomplete). the UK. and Italy are at the moment establishing further provisions in relation to the promotion of European works on online platforms. obliges all services offering film programmes to the consumer to pay the “film levy”. etc. the described circumstances should therefore only be considered as indicative. the Directive does not oblige Member States to extend the rules on promotion of European works to online delivery. Such promotion could relate. 569 “Member States shall ensure that on-demand audiovisual media services provided by media service providers under their jurisdiction promote. Romania. Italy. France (incomplete). Latvia. inter alia. (Article 46 of the SMA decree) − The Czech Republic requires services to reserve at least 10% of the total programme to European works. it might become more advantageous for VOD service providers to be established in countries with no contribution obligations. Member States that have transposed the Directive are Bulgaria. the production of and access to European works.

Innovative support schemes such as the UK Film Council’s and NESTA’s digital innovation support scheme573 or the CNC’s structured funding programme for VOD exploitation in France574 are exceptions. important steps have been taken by EU institutions to mitigate the impact of copyright territoriality. such as the exhaustion rule. In addition.4 Conclusion Europe’s ambition to create a digital single market for creative content has been the underlying rationale for taking legislative action in the field of copyright576. Considering the international dimension of digital distribution there is a real opportunity to coordinate such national policies to promote international promotion or distribution. 4. Consultations showed that film-funding institutions in the Netherlands.2 see country profile Germany 576 The Green Paper on Copyright and the Challenge of Technology states “to end legal barriers in the form of disparate copyright rules that might lead to market fragmentation and distortion of competition. The European national film institutes (EFADs) should be encouraged to work together with a view to exchange best practices and consider joint policy development with regard to better support to VOD. This could undermine national cultural policies aimed at supporting the local audiovisual industry. Sweden and Germany intend to introduce new support schemes aimed specifically at encouraging the take up of VOD. the country of origin principle or mandatory collective licensing – but also a vast 572 However. the German film-funding law stipulates that the national film fund’s contributions to the sector may also be used for the exploitation of certain films on VOD575. There is an opportunity for the MEDIA Programme of the European Commission to consider this coordination role. Brussels 7 June 1988 COM/88/172 184 . VOD and Catch-up TV In Europe. a heterogeneous implementation of the AVMSD provisions across the EU could lead to a situation where international VOD service providers would be incentivised to relocate to countries with the least financial or promotional obligations. the Maltese film-funding system also supports new technologies to a certain extent and.In the long term. were to be removed and measures to defeat “audiovisual piracy” . it is today still difficult to understand whether such rules have a direct impact on consumption.3. 573 For details see NESTA website http://tinyurl. and encourage the establishment within the internal market of “audiovisual funding havens”. Whilst some focus on supporting traditional forms of distribution. others are more pro-active in adapting a support regime that fosters experimentation and risk taking with new business models or more innovative marketing and distribution strategies.com/yf8sz7k and country profile for France 575 Filmförderungsgesetz Art. October 2009). as has been shown in the EAO-study on VOD and catch-up TV (EAO. In general. in a less explicit way. as VOD service providers make available little information concerning this matter. 4.com/ykjvzog and country profile for UK 574 For details see website of the CNC http://tinyurl. Digital distribution may provide the opportunity to leverage national support schemes for international gains.4 Support initiatives for VOD at national level The extent to which national audiovisual policies and support programmes engage with the newlydeveloping video-on-demand sector varies considerably. As illustrated. the provision of targeted support programmes across Europe can be evaluated as rather modest. Innovative legal principles and rules.4.Green Paper on Copyright and the Challenge of Technology. 53b para.

As a result. licensing practices reflect a commercial and a structural reality. namely in relation to satellite and cable markets. In short. some scholars577 take the view that the EU’s priority should be to investigate a “European copyright law”. Despite these regulatory and judicial efforts the structure of the sector. the practice of territorial licensing has a lot to do with commercial decisions based on the structure of a European market that is characterised by linguistic and cultural differences.page 29. present copyright mechanisms do not prevent users from obtaining international licences or rights holders from granting such a licence. Furthermore. Recasting Copyright. it does not automatically lead to an increase in pan-European licensing. pp. pp 14-15. they relate to the insufficient harmonisation in copyright implementation in relation to: − Copyright enforcement rules relating to liability of intermediaries or illegal file sharing − Uncertainties regarding rights definition − The licensing of older and orphan works − The governance rules on rights management bodies 577 See in particular Hilty Reto M. the attempt would require radical changes in all existing national and international copyright laws.cit. remains significantly fragmented. IVIR. Peifer K-N.cit. op. there are several other regulations and territory-specific commercial practices that would require harmonisation to make the exercise of an EU-wide copyright feasible. Intellectual Property and the European Community’s Internal Market Legislation copyright in the internal market. given that culture (on the premise that copyright is a key tool to achieve cultural policy objectives) remains a subsidiary competence of the EU579? Would further regulatory intervention change this state of play and increase cross-border trade in audiovisual works? There are still many legal obstacles that are slowing down the emergence of a single audiovisual market. As has been illustrated. as the commercial exploitation is concentrated in the hands of the producer. IIC 2004. show that even if cross-border licensing of copyrighted content is facilitated through mechanisms such as the country of origin rule in satellite transmission or mandatory collective licensing. Second. However even the proponents of this idea have to admit that it is for the moment rather far-fetched578: First. Would Member States hand over such important competences to the European Union. 578 See in particular IVIR .programme of copyright harmonisation (with seven Directives) across the EU – have been implemented to create further integration of Europe’s audiovisual markets. which is essentially linked to audiovisual economics. Audiovisual licensing is actually more straightforward in audiovisual than in music.page 29. The past experiences from the sector’s development. to linguistic and cultural consumer preferences and to issues of rights management. Recasting Copyright. Finally. op. op. p. These factors also explain the lack of international services and the comparably low demand for non national European audiovisual products. 769-775. as illustrated in a previous Section. 222 185 . it is questionable whether the EU is in a position to embark on such a colossal and long-term task under current political circumstances. 579 Ibid. This idea is also discussed in the recent Reflection Document. as well as by high transaction costs in distributing local content across borders. However.cit.

the administration and monitoring of usage. op. Consumer reluctance to trade online because of security concerns and legal uncertainties constitute another major obstacle580. 581 Digital Agenda for Europe. exclusivity and territoriality (the acquis communautaire). users and rights holders. studies and also the letters we receive from citizens show that many consumers feel uncomfortable in the online environment. etc. This is also highlighted by the EC’s Digital Agenda for Europe in which the simplification of copyright clearance.− The implementation of authors’ rights in audiovisual works Further obstacles to the development of a single market for “Creative Content Online” include: − A discriminatory VAT treatment for digital distribution − Insufficient coordination of national regulations in the field of release windows. The considerations will be driven by the ambition to help European creators and investors in creativity to make the most of a Single Market that expresses Europe’s cultural diversity.cit.) whilst respecting at the same time important pillars of the international copyright and neighbouring rights systems: contractual freedom. The Agenda states that “[e]asier. Our surveys. The following chapter will make concrete and practical recommendations to ease and streamline the licensing process in the interest of consumers. this function could be: the identification of rights holders. to the benefit of European citizens. This would involve as much as possible one-stop shop solutions (one place that can have different functions depending on mandates given by the individual rights holders. p. 8 186 .” Speech by Commissioner Reding. management and cross-border licensing are defined as priority areas to be acted upon581.cit. 9 582 Ibid. Rights holders would not be obliged to license for all European territories. 12 November 2009 SPEECH/09/524 and Eurobarometer survey 298 op. Based on the results of the EC’s public consultations on creative content online. 580 “There is a growing concern of citizens about the risks to their personal data and their privacy. there appears to be a consensus among stakeholders that the key issue is to enhance licensing efficiency through a more streamlined rights management process. and on the Reflection Document. A large number of disadvantaged users are excluded from the knowledge society or their rights are not protected. more uniform and technologically neutral solutions for cross-border and pan-European licensing in the audiovisual sector will stimulate creativity and help the content producers and broadcasters. ratings or support mechanisms. p. the negotiation of licensing terms. at BEUC multi-stakeholder Forum on "Consumer Privacy and Online Marketing: Market Trends and Policy Perspectives" Brussels. but would remain free to restrict their licences to certain territories and to contractually set the level of licence fees”582.

More than 1. Telecommunications and cable operators. It contributes to EU growth and employment and stimulates innovation in diverse neighbouring sectors. and has therefore commissioned the present study to understand how policymaking can best assist the sector in this context. The cultural and creative industries. 5. Audiovisual works – similar to other forms of cultural content – foster spending on digital infrastructure and consumer electronics. and notably the audiovisual industry. broadcasters as well as newly-established VOD services rely on audiovisual content to attract consumers and to sell subscriptions for their services.7 billion people worldwide are now online584 and broadband connects 56% of European households585. Ibid. are therefore important to the implementation of Europe’s digital strategy. It perceives VOD and improved rights licensing as an opportunity to promote the establishment of a digital single market for audiovisual content. internet service providers. Objectives of the assignment were: − an analysis of the legal framework and prevailing licensing practices as regards digital audiovisual content distribution in the EU and Member States − a description of the structure and the development of the EU audiovisual market and related content distribution − an assessment of the feasibility of international licensing in the EU − an analysis of related economic and cultural consequences The following conclusions and policy recommendations summarise the key findings of this assignment. and subsequently suggest a range of recommendations for the European Commission to achieve the identified policy objectives. 187 .1 Key findings 583 PWC Global Entertainment and Media Outlook 2009-2013. its innovation endeavours. p. These stakeholders manage the new gateway to knowledge. It can enable artists and creative companies to engage with new audiences. The EC wishes to help European audiovisual companies and talent to benefit from VOD and to create greater cross-border demand for their works. They are also a source of imagination. 193. its economic ambitions and its cultural and social objectives. 255 and 318 584 See Internet World Stats (2009) 585 EUROSTATS.CHAPTER V POLICY RECOMMENDATIONS AND CONCLUSIONS Europe’s audiovisual industry is valued at close to € 100 billion583 annually. creativity and renewal for Europe’s increasingly knowledgebased society. culture and entertainment. Digital distribution provides new opportunities for European cultural and creative industries. By sustaining cultural diversity and media pluralism the audiovisual sector promotes important democratic values that lie at the heart of the European project.

Bundling and price discrimination helps them to extract the greatest value from each market. This category is opposed to “search goods” whose utility can be known in advance and for which competition mainly relies on prices. 587 Transaction costs are costs related to establishing market conditions. displaying a number of specific characteristics. This has to be acknowledged. Furthermore. This specificity needs to be taken into account by policymakers whose objective is to promote the internal market for audiovisual works. Because of the linguistic fragmentation of the audiovisual market there are economies of scope and economies of scale in selling audiovisual rights. These are related to the state of the audiovisual industry. bundling and price discrimination. Audiovisual works also have to be intensely promoted. the US). This experience often changes if one crosses cultural or linguistic borders. VOD. Recognise the specificity of the European audiovisual industry The European audiovisual industry is different from other industries. N°2 Mars-Avril 1970. How to enable the European audiovisual industry to overcome these obstacles. The Journal of Political Economy. corresponding to several content versions being created by the same distributor that can handle the discrimination between different market segments of the work in a given cultural/linguistic market. These practices are essential as the audiovisual sector is characterised by high investments and considerable sunk costs.) and linguistic/cultural markets.There are a number of key concepts that underpin the analysis in the present report. etc. as a consumer often does not know the content of a film or a television programme586. its economic processes. experience goods are goods that need to be tested before knowing their utility. Importantly. Any attempt to support the audiovisual sector needs to take into account that its rights holders crucially depend on the ability to decide where and when to license the exploitation of their works. DVD.1). contractual costs related to licensing would – for example – constitute a transaction cost (see also Section 2. as well as a range of findings that emerged as a result of the research conducted. In the audiovisual sector. 586 From an economic viewpoint. discrimination costs (such as costs related to marketing a film in a specific market) should be distinguished from transaction costs. audiovisual rights holders maximise their revenues through content versioning. « Information and Consumer Behavior ». how to create more consumer demand for local language films (or film d’auteurs) and how to facilitate easier cross-border distribution and reduce related transaction costs587 linked to rights management are therefore major challenges for the European Union. 188 . marketing efforts undertaken to attract consumers are often specific to different linguistic and cultural markets in Europe. Given these special circumstances it is more difficult to distribute and exploit audiovisual content across borders in Europe than in regions of the world where cultural and linguistic markets are less heterogeneous (e. It would be unwise if European intervention prevented rights holders from maximising their returns on investment through market segmentation. Vol 78. See Phillip Nelson. Marketing efforts made in this market may then benefit exploitation in all release windows.g. Audiovisual rights holders create and trade semantic goods and services whose value depends on the willingness of consumers to pay for a meaningful experience. Consequently. structure and potential future development as well as to the legal context in which cross-border trade of digital audiovisual works develops. television. Versioning allows them to exploit works across a range of distribution systems (theatres.

Furthermore. or Svenskfilm. They have confidence in continued consumer interest in digital audiovisual works which. p. Despite experiencing significant growth in the past years592 the value of the European video-on-demand market remains small compared to other version markets.7% in 2008 in Europe. Nevertheless. Wild Bunch. The fact that there are two billion videos watched on YouTube each day illustrates that there is an appetite for creative content online.The European audiovisual industry requires support to embrace the digital shift Europe’s audiovisual industry is highly fragmented and consists primarily of micro businesses and SMEs that produce on average two to three films a year. As indicated before. In Europe. Significant EU funding through the MEDIA Programme also aims to promote crossborder distribution of European films (€ 755 million from 2007-2013). the fact that original rights holders often sell distribution rights for multiple version markets in return for minimum guarantees from broadcasters and distributors makes it difficult for them to experiment with new forms of exploitation on VOD. Because of the public interest in maintaining a healthy and culturally-diverse audiovisual sector the public sector contributes directly more than € 1. p. 20 October 2009) 189 . This focus is the result of the comparably modest value of VOD markets in Europe. Public Funding for the European Film Industry Grows as Companies’ Financial Situations Weaken.2 billion annually to audiovisual creation and distribution590.14 589 European films achieved an estimated theatrical market share of 26.1% in 2008. Important players in the value chain – Hollywood majors. Nordisk. Cross-border circulation of audiovisual works in Europe remains weak589. 591 see box on MEDIA recommendations below 592 PricewaterhouseCoopers illustrates that the digital download market for VOD has doubled last year (page 328) and that total IPTV VOD revenues for Western Europe reached US1. See PWC Global Entertainment and Media Outlook 2009-2013. See: EAO Focus 2010.2 billion in 2008 (page 2009). Finance is an important bottleneck to the emergence of an attractive legal VOD offer. However this support policy – whether at European or national/regional level – remains essentially geared towards traditional forms of distribution591. See: EAO press release (2004). There are so far few economic incentives for film producers to retain and exploit their VOD rights compared to exploitation in other version markets. VOD revenues today represent around 1– 2% of total audiovisual industry revenues.14. but vertical integration is limited to linguistic markets. there are strong signs that VOD will become a more relevant market in the future. broadcasters. Next to a lack of market demand it is because of this structural weakness and the strength of Hollywood majors that European rights holders have difficulties accessing markets beyond the country of production and co-production. theatrical admissions in Europe illustrate the continuing weakness of the internal market for European audiovisual content: the share of admissions regarding non-national European films in EU theatres has remained at around 8% for the past decade.g. EAO Focus 2010. The emergence of close to 700 ondemand and catch-up services throughout the European Union shows that the industry sees a real 588 US films’ theatrical market share in Europe was estimated to be 67. Figures excluding support for public service broadcasting and tax incentives. Traditional players in distribution have an interest in a slow development of VOD if it cannibalises existing revenue sources (e. Some large European players exist in the film sector such as Pathé. DVD retail or pay-TV). constitute a premium entertainment product. together with sports content. Telenet saw VOD demand rise by 50% in 2008 and registered 14 million visits in the first semester of 2009 (Press article on 2009 VOD Study from the EAO. Hollywood majors face little competition from individual European film companies as they cannot benefit to the same extent from the single market588. 590 European Audiovisual Observatory (2002). ISPs and cable operators – position themselves to benefit from digital distribution.

2 billion in 2013. In Europe the level of production increased from 870 in 2004 to 1145 in 2008 (EAO World Film Market Trends 2009. Such an infrastructure should resemble a network of stakeholder-driven solutions rather than one ambitious top-down EU initiative. Adams Media Research. the competitive advantage goes to the distributor that is best able to discriminate between consumers to maximize the revenue from all audiovisual versions.html 594 Gross box office in the EU is expected to grow in 2009 (hard data is not yet available) to $ 8720 million. The film industry is also aware that it needs to compensate for the decline of DVD revenues by entering VOD (Hollywood DVD revenues declined again by 13% during 2009593). EU rights holders would benefit from the emergence of an ICTenabled international rights licensing infrastructure that makes use of common metadata standards. http://news. access and experience content in novel ways and should therefore enable audiovisual rights holders to access new markets. p. 593 Tom Adams. 13). p. Pelicula de terror en Hollywood. and audiovisual revenues remain relatively stable594. Based on this data. 18 Oct 2009 and Sandoval Greg. 25 Feb 2010. The sector can also use innovative tools to overcome obstacles which have previously further partitioned the European audiovisual sphere. PWC recorded a slump in global entertainment and media markets in 2009 and 2010 but predicts a recovery of those markets in 2011. more synergies between existing EU programmes and initiatives that could be to the benefit of VOD and pan-European licensing such as MEDIA. More importantly digital technology enables media service providers to understand and track consumer preferences. Digital technology reduces delivery and storage costs. Contrary to the above-reported decline in DVD sales. 11. However. 10. 190 . El Pais.cnet. and therefore tailor a service to people who cannot access specialised film in today’s established distribution system. and should provide one-stop shopping solutions where possible (see next Section). pool information about titles and rights holders and provide one-stop shops to commercial users that might want to acquire VOD licences for multiple territories in the future. p. In this context. EAO Focus 2010. FP7/8 and Europeana need to be created to bring such an environment about. Results of technology solutions that support rights clearance and management need to be widely disseminated. In relation to international licensing. A rapid deployment of digital technology across the EU can further increase this turnover. as quoted by Ayuso. the number of VOD services. Despite the current economic crisis production levels for films worldwide continue to grow. However in a stabilised and connected environment.potential in digital distribution. A key uncertainty of the assignment relies on the fact that in the roll-out stage of broadband infrastructure. promotes digitisation and subtitling of old as well as new local language works and makes information about the availability and costs of content more transparent. CIP ICT PSP (Digital Libraries). Screen Digest reports (for example) that the EU VOD market represented a total turnover of € 644 million in 2008 and forecasts that revenues will grow to close to € 2.com/8301-31001_3-10459494-261. the bundling of content and access can be used to speed up the roll-out of broadband services. However the fact that EU VOD markets are in their infancy must be taken into account. Several of the case studies and emerging market-driven initiatives highlighted in the report illustrate that the sector can promote specialised content to specific target markets across borders. an important shift of revenues occurs between different audiovisual markets. PWC Global Entertainment and Media Outlook 2009-2013. as well as circulation of EU works will increase in the next five to ten years. the present report projects that VOD turnover. Time for Apple to get serious about video. enables users to search. Rocio. CNet.

The economic analysis projects that increased international licensing would increase the circulation of EU works. and that they are linked to a title’s success in theatres as well as on VOD595. In the long term. Focus on MEDIA 2007 and Digital Distribution (also see case study in Section 2. the multitude of small and medium-sized European audiovisual companies should be encouraged to collaborate and jointly formulate strategies that enable them to exploit their rights on future international VOD platforms. Nevertheless. As illustrated in Section 2. 14 191 . The economic analysis shows that marketing costs make up an important bulk of any costs related to a film’s release. There is therefore a credible rationale for public policy to help the sector adapt to the challenges of the digital shift and the potential of the single market. a larger focus should rest on digital distribution.g. Viacom (Paramount) or News Corp (Fox). However the total level of funding made available for VOD. To achieve this. video on demand can offer the sector the opportunity to overcome the marginalisation that EU rights holders experience in physical distribution. collaboration among European rights holders can be used to better promote their interests in order to offer more diverse content to consumers and citizens. At individual level European film companies are dwarfed by the market power of Hollywood majors.e. However demand in non-national European works would have to be further stimulated by implementing innovative marketing strategies. the costs of the licensing process) is a credible policy aim this cannot include a reduction of discrimination costs (i. While specific comments in relation to MEDIA are provided below. rights databases and interoperability 595 The report also explains that while a reduction of transaction costs (e. Given that MEDIA will have spent € 755 million between 2007 and 2013 on supporting the development of the single market for audiovisual works. detailed policy objectives and recommendations will be examined further below. DCD and Pilot Projects is small (approximately € 8 million annually) in relation to the challenges at stake. Europe’s audiovisual industry may be fragmented but this does not prevent it from cooperating. in recent years. digital technology or a mere change in licensing practices will themselves not by default create more cross-border demand for EU works. 596 EAO Focus 2010. Together. Sony. costs related to marketing a film to a specific target audience). The market share of the largest European players is less than 1% of international distribution. By acting collectively on a voluntary basis rights holders can offer VOD operators more attractive rights bundles and decrease negotiation and transaction costs on both sides (see next Section). p. developed a deliberate support strategy in relation to digital distribution. Disney. compared to the average 10% to 18% for Universal.2 the sector can reach out to new communities of interest by utilising social networking and the collaborative power of digital communications. whereas US films have a market share of 67%596.2) Compared to many national and regional support programmes MEDIA has. European films achieved an estimated theatrical market share of 27% in 2008.However. In this context MEDIA should: − − − − − support film companies to develop and implement digital marketing strategies encourage the development of innovative social media tools to promote films commission research in relation to VOD consumer behaviour facilitate more collaboration and cooperation between somewhat disconnected VOD initiatives across Europe promote further technical international standards setting.

There are no laws or regulations that prohibit an original rights holder from granting a licence for international exploitation. Whether for cable. creators and rights holders are able to exploit and trade their rights independently and in accordance with their legitimate commercial and moral interests. the recent EC Reflection Document states: “the traditional territoriality of copyright has come increasingly into conflict with the imperatives of a borderless single market […]”597. In the past European policymakers have made many attempts to enable EU content sectors to better benefit from the single market – most recently in relation to the music sector (where the rights clearance system is particularly complex). decisions and regulatory initiatives by EU institutions recognise this. Due to important copyright principles. 597 Reflection Document. territoriality and exclusivity do not per se prevent the licensing of audiovisual works on an international basis. which operate subsidiaries in several European countries. Even large panEuropean operators such as RTL/Bertelsmann or UPC/Liberty Media. Copyright standards are not a bottleneck to the emergence of a single market – the real issue is facilitating rights licensing Copyright and related rights are essential tools that reward creativity and innovation and stimulate investments in audiovisual content production and distribution. providers remain primarily active within specific linguistic or cultural territories.e. satellite or telecommunications services. Nevertheless. Conditional Access Directive) − by adopting rules regarding the exercise of copyright in order to mitigate the impact of territoriality: for example the exhaustion principle has been applied to encourage parallel imports of physical goods.− − − forge links with other EC funding schemes and aide MEDIA constituents to participate in EC ICT research and innovation programmes support training of EU audiovisual rights holders in relation to technology expertise and VOD strategy Actions lines of the 2010 call of MEDIA. Regulatory intervention has not been sufficient to enable the development of cross-border services and operators at pan-European level. 10 192 . as well as recently-supported initiatives such as the EuroVOD network. broadcast. but also in audiovisual through the harmonisation of copyright legislation: − by clarifying the law applicable to the act of broadcasting or satellite transmission (country of origin principle) and the fight against copyright infringing broadcast activities (i. EU legislation. illustrate that MEDIA has already shifted some of its focus towards more cross-border collaboration and the innovative use of ICT.However. pay-TV. provide localised services to cater for the needs of local audiences. and mandatory collective licensing was introduced in relation to the exercise of cable retransmission rights. p.

international licensing already occurs today when the market asks for it598. 2: “Transfrontier distribution of content does take place – but only where there is a market for it”. to a large extent. To counter inefficiencies they ask for greater transparency of rights catalogues. determine the presence of European works on digital networks. but would remain free to restrict their licences to certain territories and to contractually set the level of licence fees”. Cumbersome and costly clearance processes act as a disincentive to trade IP rights. Providers of VOD and audiovisual media services are right to stress the high costs they face in identifying and acquiring VOD rights from the multitude of rights holders in Europe. Major owners of catalogue titles (essentially Hollywood and large European media players) will be in a position to manage the licensing without many problems. − 598 See ACT (Association for Commercial Television) submission on the Reflection Document p. Stakeholders are not in favour of regulatory intervention to impose international licensing599. It is also evident that. operators often prefer to buy rights catalogues rather than acquiring individual titles (save for hit titles). Similar to the situation in the music sector. and offer one-stop shop solutions in relation to their respective catalogues independently of the multiplicity of users and/or territories. They have the human and financial resources and they will be keen to monetise their properties through new distribution channels that are largely dependent on attractive and premium content. It states that a cross-border and panEuropean licensing solution “should preserve the contractual freedom of rights holders. 193 . an exception being consumers’ organisations600 without being specific on the type of actions they deem necessary. Ericsson/DIGITALEUROPE called for an “online database” in their contributions to the Public Consultation on Content Online. Those players that may want to offer content on an international basis in the future think that streamlining complex licensing processes to identify and acquire rights would be necessary to enable international exploitation. This implies that territorial exploitation is a reflection of market demand. as scale is important for digital platform operators who want to attract users with a sizable offer of titles. or for the establishment of centralised rights databases to ease the identification of rights holders and to streamline rights clearing and remuneration processes601. to increase the market potential of Europe’s audiovisual content. Furthermore. the streamlining of rights licensing is essential. Indeed. The ability to provide easy access to a licence will. creates new market opportunities and thereby establishes a new source of revenues for the future. Enhanced licensing efficiency fosters access and demand for audiovisual works.Furthermore. The EC communication on a Digital Agenda for Europe confirms the importance of territoriality and exclusivity embedded in the contractual exercise of IP rights. Rights holders would not be obliged to license for all European territories. They often refer to their experience in the licensing of musical works in this respect. 599 Outcome of workshop on 2 June 2010 and notably EDIMA responses to Reflection Paper in 2010 as well as its response to the Round Table Discussions on eCommerce in 2009. the great majority of VOD service providers exploit content in individual linguistic markets. 600 See BEUC statement to Reflection Document 601 Apple already called for “central repositories for data about who owns what” in its contribution to the Online Commerce Round Table. or do not have the resources to acquire international licences. service providers that want to make the most of the long tail would therefore benefit from the emergence of onestop shop licensing solutions.

retailers. remuneration) lead to their exclusion from emerging digital markets has to be avoided. which can sometimes threaten the viability of existing business models (selling for ownership or rental) or the existence of intermediaries in the value chain (distributors. The large majority of small to medium-sized European audiovisual companies will have to consider collective approaches. Because the digital shift is leading to a difficult transition. 603 Contribution of the European Producers Club after the stakeholder workshop 194 . such changes require that the audiovisual industry adapts its licensing processes to meet the demand of audiovisual media service providers. At the Round Table on 2 June 2010 to discuss the draft report the representatives of film directors’ collecting societies in Europe (SAA) indicated willingness to talk with the EBU on this proposal which caters essentially for retransmission of TV programmes on digital networks. In this respect it is useful to highlight the so-called Google book settlement with organisations representing publishers and authors in the USA. largely financed by Google. A number of innovative market-driven initiatives which seek to help European audiovisual rights holders as well as commercial users to ease cross-border licensing and acquisition have been identified in the report and seem to show the way602. Failure to ease the licensing process will mean further marginalisation of European content in the international market place. digital distribution of catalogue titles requires a rights management infrastructure that rights holders often cannot afford. in order to ease the licensing process with digital platforms that make available digitised works. etc. the European audiovisual initiatives of Universcine in France and EGEDA in Spain. Its proposal essentially relates to the extension of the SATCAB Directive. the EBU calls for legislative action on licensing with a view to easing the licensing process.). sales agents. These initiatives remain rare because a collective approach to rights licensing remains largely unknown in the film sector (as opposed to the music sector for instance)603. It provides for the establishment of a licensing infrastructure. the new and powerful distributors. This will be a key requirement to make their catalogue and individual films attractive for acquisition. whose role is to establish a one-stop shop managed by rights holders. From an individual European rights holder’s perspective. A situation whereby the costs of licensing (identification. This implies applying a country of origin rule to all audiovisual media communication to the public (linear and non linear broadcast-like) and extending the mandatory collective licensing regime to any retransmission of broadcasts. It remains that rights holders or their representatives in the “country of 602 The discussions concerning the importance of Europeana. negotiation. This will change as rights management will become an even more essential tool for monetising creativity as Europe’s economy further transforms into an intangible economy. Under the EBU proposal rights holders remain free to grant such an international licence and to determine its geographical scope.The main challenge is to enable European SMEs (which form the bulk of Europe’s audiovisual industry and which represent its most creative force) to benefit from new market opportunities. In its detailed comments on the Reflection Document on “Creative Content in a European Digital Single Market”. Such an infrastructure can trigger the availability of more digital services and expand the book market. but also the Google book settlement and the establishment of a book rights registry in the US illustrate that the potential of approaching rights and metadata management collectively is currently taken into account by rights holders in different content industries and across continents. The EBU stresses the importance of collective licensing to prevent the fragmentation of rights acquisition. or innovative services that aggregate rights and thereby negotiation power. irrespective of the delivery technology. in order to gain access to future pan-European digital distribution platforms.

the governance and transparency of collective rights management. It is time to carefully consider such development and assess their potential to achieve European policy objectives. In light of these developments it is argued that the regulatory focus should shift from the ambition to review copyright standards (for example by contemplating a European Copyright Law) to facilitating the development of more efficient cross-border licensing practices. Some level of European harmonisation and coordination is required The legal analysis surfaced a range of legislative and policy-related issues that hamper the development of a single market for digitised audiovisual works. There is considerable experience in Europe of licensing processes and numerous initiatives aimed at fulfilling much-needed and straightforward back office functions. p. This requires the establishment of industry-wide reciprocal representation agreements (a system that has recently been dismantled in musical rights following intervention from the EC competition authorities) and infrastructure enabling such mandates. It might be because of the absence of such infrastructure in the audiovisual sector that the EBU limits the proposal to content originated by the broadcaster. one of the seven flagship initiatives of Europe 2020. tariffs or geographical scope) − the establishment of databases and rights registries to identify rights holders and provisions in contracts with talents − to clarify the rights position in relation to orphan works or audiovisual works that are not subject to presumption of assignments to the producer − to review and streamline the licensing of music publishing rights − to establish trust in rights management bodies Research and innovation programmes aimed at maximising the social and economic potential of ICT as part of the Digital Agenda. as well as the harmonisation of legislation on VAT. This would encompass rules or support in relation to: − the setting up of one-stop shop practices to ease the licensing process for users (on a voluntary basis and in full compliance with the principle of contractual freedom in relation to.origin” would have to be mandated to negotiate on behalf of foreign rights holders that have been assigned or licensed an exclusive exploitation right in the country subject to digital distribution. orphan works or authors’ rights. This report therefore concurs with the conclusions reached in the Digital Agenda for Europe which states that legislation may not be necessary to enable the development of new innovative business models604. They relate to copyright enforcement. 8 195 . should be geared towards the establishment of such licensing infrastructure to overcome market fragmentation inherent to the cultural and social fabric of Europe. for instance. The EU needs to lead on copyright enforcement 604 A Digital Agenda for Europe.

the market would benefit from greater transparency of collective rights management bodies. For example. VOD operators and digital infrastructure providers should cooperate more closely with the media sector and with copyright enforcement agencies. Both commercial users and collective rights management bodies agree that. and only then can European audiovisual rights holders really benefit from a single market for audiovisual content. Only if Member States and the European Union agree on robust standards of enforcement can a single digital market for audiovisual content prosper. Only if this collaboration is established in the European Union can a dynamic. It has to be acknowledged that digital technology has changed the scope of copyright infringement – especially at the level of end-users who continue to download and share vast amounts of copyrightprotected works without authorisation. given their importance. and if unauthorised downloading continues to limit rights holders’ abilities to invest in the creation of audiovisual works. The governance and transparency of collective rights management bodies The potential of voluntary collective rights management solutions to help European audiovisual rights holders to access future digital distribution platforms has been discussed throughout this report. Other Member States do not deal with the issue at all. The EC recently 605 ECJ case C-275/06 on 5 February 2008 Productores de Musica de Espana vTelefonica de Espana SAU 196 . To achieve this a more coordinated approach may be required across the EU and its Member States. and Spain is considering a draft law. as the e-Commerce Directive is now given a different interpretation in different jurisdictions.Digital distribution will not turn into a profitable market that can offset declining revenues in other version markets if copyright is not enforced. as several objectives and legal principles need to be weighed against each other as highlighted by the European Court of Justice in the Promusicae case605. Disparities in copyright enforcement and uncertainties of how to address the numerous challenges (identified in Chapter IV) make copyright enforcement across Europe a difficult endeavour. In other words. This can best be achieved if the costs of enforcement are to some extent internalised by the distribution sector. pluralistic and diverse audiovisual sphere be preserved. European leadership is required in this process. decrease transaction costs for both rights holders and commercial users and may to some extent be able to reduce territorial fragmentation if coupled with other forms of support for marketing and promotion. each of them is offering different solutions to the same problem. They can also create legal uncertainties for service providers which are risking being held liable for some actions in certain territories whilst not in others. as they cannot be assured of equal protection of their rights in other jurisdictions. In the long run such disparities and uncertainties can discourage rights holders to license works for online distribution in multiple territories. and that such transparency can best be achieved through harmonisation at European level. while France and the UK have adopted legislation in this respect. Articulating this approach is far from easy. Collective management can increase access to a wide range of audiovisual works. To really curb copyright infringements end-consumers need to experience the disutility of unauthorised downloading. How the EC could address the sector’s requirements is further outlined below.

while safeguarding cultural diversity.2 Policy objectives Based on these findings the overall vision of this report’s recommendations is to stimulate and promote a dynamic and pro-active European audiovisual industry that embraces new market opportunities and the potential of a single market for digitised audiovisual works. Digital Agenda for Europe. − Legal uncertainties or laborious processes regarding the licensing of older works (not subject to presumption of assignment) and orphan works slow down the development of cross-border online services. In the context of their unfolding digital and cultural agendas European institutions should continue to coordinate with EU Member States and all stakeholders to resolve these issues. Requirements of harmonisation or coordination with Member States Furthermore. With a view to collective licensing such intervention should aim to improve transparency of collective rights management bodies in relation to a range of topics and acknowledge the important cultural and social roles of different societies across EU Member States (see recommendations).cit p. 9 197 . The study does not advocate EU harmonisation as these practices reflect strong cultural and social tradition but promotes the exchange of good practice in this area. some regulatory provisions may potentially either raise transaction costs in cross-border trade of digital audiovisual works or have the potential to unbalance a level playing field for panEuropean VOD services: − Varying VAT rates for different transmission standards and content versions is to the disadvantage of VOD. op.announced its intention to propose a framework directive on collective rights management in the course of 2010606. 5. This breaks down into the following policy objectives: − Support the establishment of a single market for digitised European audiovisual works − Promote cultural diversity and a competitive European creative sector as part of EU innovation and cultural agendas 606 European Commission. − It is also important to intervene with a view to make the single market a reality for authors of audiovisual works by introducing a right to equitable remuneration for the digital distribution of their works. Online transactions related to cultural products and services should enjoy a lower VAT rate and VOD consumption should not be VAT discriminated. − Different rating practices for audiovisual content also contribute to disadvantaging VOD exploitation.

animation) the following recommendations primarily address existing digital distribution opportunities of small to medium-sized enterprises. and which offer operators easier licensing solutions. as further outlined below. It is acknowledged that both sets are not mutually exclusive. > Establish an ICT-enabled and internationally-connected licensing infrastructure: The EC should also support the emergence of an internationally-connected and ICT-enabled rights licensing infrastructure. Two sets of measures would contribute to the establishment of a licensing infrastructure in Europe conducive to more cross-border trading and better access of European audiovisual works to digital platforms: > Support voluntary collective licensing initiatives and mechanisms: Small and medium-sized rights holders should receive support through MEDIA and other EU programmes to establish collective initiatives which can help them access VOD platforms on fair terms in the future. Recommendations to support the establishment of a single market for digitised European audiovisual works Different measures would support this objective. in particular in relation to those platforms established in foreign countries. One relates to efforts to achieve an internal market. documentaries. territoriality and exclusivity – the pillars of the copyright system. I. policies that increase demand for European film can also help to develop the single market. a readjustment of EU support policies as well as to coordinating efforts with Member States. and the other to measures that promote cultural and industrial policy objectives.These objectives can be broken down into practical recommendations that relate to EU legal harmonisation. They relate to: − Decreasing transactions costs (essentially the cost of licence acquisition) − Further legal harmonisation to contribute to more legal security and promote investments in creation − Increased coordination with Member States 1. 5.3 Policy recommendations The proposal distinguishes between two sets of recommendations that aim to implement the above policy objectives. This can be achieved by promoting one-stop shop solutions developed by the 198 . the first set of measures is more structural and sometimes calls for regulatory interventions. It also highlights the importance of easing the licensing process to foster the presence of European audiovisual works on VOD platforms. As the sector primarily consists of audiovisual companies that produce two to three films per year (feature films. For example. However. Decrease transaction costs The report emphasises the importance of safeguarding contractual freedom.

users and technology stakeholders. > Take the lead in promoting more effective copyright enforcement across the European Union: − The EC should propose legislation to harmonise criminal sanctions in relation to online copyright infringements − It should promote an informed EU-wide dialogue regarding the effectiveness of copyright enforcement mechanisms: first. and interoperability between. rights registries. interoperability between existing services and tools. It would create an environment that promotes investments into the creative sector and provides more legal security for rights holders and users. The development of. 199 . by conducting an impact assessment on the appropriateness and effects of the graduated response mechanisms in Member States − The essential role of copyright and neighbouring rights to promote creativity and cultural diversity also needs to be better communicated. as well as stronger cooperation of rights holders.market. by preparing a discussion document on finding an appropriate balance of fundamental rights in the digital age. EU media literacy initiatives and further communication efforts should therefore promote IP rights literacy. > Introduce a framework directive that promotes greater transparency and governance requirements for collective rights management bodies which relates to: − the financial and operating results of societies − major share ownership and voting rights − company mandate and objectives − governance structure and policies − remuneration policy for members of the board and key executives as well as their professional qualifications − extent of activities in the social and cultural field − distribution policy to the rights holders in relation to the different rights (including management fees) − exact scope of repertoire and applicable terms and tariffs > Enable authors’ societies to collect remuneration on behalf of authors when their works are exploited abroad: An unwaivable equitable right to remuneration for the “making available right” should be introduced. second. more homogenous technical standards (in relation to encoding. as well as better interplay and cooperation between numerous platforms should be supported. delivery and metadata) across Europe. Further legal harmonisation Legal harmonisation – or examination of the potential impacts of such harmonisation – will be beneficial to promote the digital single market. 2.

Film archives should be put in a position to serve the public interest and unleash the educational and cultural potential of Europe’s strong film heritage. Coordination with Member States There are further circumstances related to how Member States regulate and support the audiovisual sector. similar to those that apply to the sale of theatrical tickets. which require increased European coordination efforts with governments and public sector agencies in Member States and regions to fully unleash the single market for digitised works: > Facilitate more harmonious rating practices: EU Support should help coordinate national agencies in developing common descriptive criteria for national ratings. For example. support funds. 3. The current impact assessment by DG Internal Market in relation to orphan works. Cine Regio and the different audiovisual trade bodies should develop a shared strategy to ensure that audiovisual policies across Europe are to the benefit of a pan-European market for European works. coupled with a mandatory collective licensing regime in relation to the simultaneous and unabridged digital distribution of TV programmes. should be introduced. > Promote the licensing of orphan works: The European Commission should continue its efforts to help solving the issue of orphan works in relation to licensing for digital distribution. as well as to the general fragmentation of Europe’s audiovisual industry. By networking and encouraging national and regional audiovisual policymakers. should be commissioned.> Reduce VAT for VOD transactions A reduced VAT rate for VOD transactions. It should promote the use of signalling techniques and standardisation of ratings through different media (not necessarily across borders). Sharing best practices and networking relevant actors in this regard would be to the benefit of the single market. EFADS (European Film Agency Directors). combined with the ambition of Europeana. > Network public sector agencies and intermediaries to the benefit of European VOD: Efforts to encourage cooperation within the sector should be reflected by policymakers and public sector intermediaries. prepared by KEA (2008) 200 . should encourage the EC to include audiovisual in the scope of the future draft directive that is announced for the end of 2010. The EC should also promote the use of standards that apply to several version markets. film archives and other players in the industry to collaborate across borders the EC should help to establish a range of projects that promote a European dimension in the currently emerging VOD market607. The EC. public support for film could be 607 An example of such a pan-European VOD project has been developed in the EP’s recent study on Cinema Online – Past and Present. > Impact assessment regarding the extension of the SATCAB Directive An impact assessment concerning the application of the country of origin principle for the distribution of audiovisual content on digital networks.

Recommendations to promote cultural diversity and a competitive European creative sector: Different measures would support this objective. and it should be tested whether increasing support for such activity can trigger more demand in non-national works. in order to enable cross-border access to 201 . They relate to: − Creating new demand for European audiovisual works − Encouraging risk taking and innovation − Skills development in relation to the digital shift 1. Creating demand for European audiovisual works The study shows that marketing and branding are essential to enable the sector to reach new audiences and to ensure better circulation and consumption of European works. Funds should be available to develop and adapt digital applications that help to understand consumer behaviour. Only if rights holders develop and implement digital marketing campaigns to create more demand for European works – both nationally and internationally – will they benefit from the opportunities of VOD. facilitate closer engagement with target audiences through social media.g metadata and ownership of each work) in international databases to facilitate more efficient cross-border licensing in the long term. > Marketing support for EU films: European films that win awards at A-list festivals or European prizes (such as the European Film Awards) should receive specific promotional support throughout Europe to encourage international VOD releases. > Aide to dubbing and subtitling: Subtitling is an efficient opportunity to make available a range of catalogue films and new releases across Europe at modest costs. The MEDIA Programme should further encourage these activities. II. > Support to digital marketing strategies to brand European works: EU support programmes should give more support to rights holders that wish to further fine-tune and implement their digital marketing strategies in order to access video-on-demand markets. as well as to improve standards and expertise. Dubbing and/or subtitling their works to meet the linguistic requirements of each market are also important. and test new business models. and to a larger extent subtitling over dubbing. VOD platforms that primarily focus on a specific regional and national market should also be encouraged to enter into cooperation and exchange with platforms in other territories to facilitate a better flow of works.linked to the requirement to make available information (e.

ibid. Support risk taking and innovation European rights holders have to experiment with new forms of digital distribution and test new business models in order to understand the new market place and its requirements: > Promote schemes that allow rights holders to experiment with VOD: The EC should promote the idea that a share of public support given to producers in the EU should allow those that wish to do so to retain some rights for digital exploitation. 2.000 for dubbing. Europeana. distribution and delivery platforms. which might enable films to reach greater markets outside Europe and also enhance a social integration across European societies. Support for dubbing – which should of course continue – should also be linked to the requirement to create a subtitled version of the film. facilitate pan-European licensing and encourage multi-lingualism609. Mandarin or Russian. > Stronger coordination between VOD-relevant support mechanisms: Better cooperation efforts within the sector have to be reflected by the public sector. This investment would enable cross-border distribution on VOD platforms. Such funds could support the production and distribution sectors to experiment with new ways of getting films to audiences. This strategy would give independent films that have problems accessing traditional distribution markets a new opportunity to succeed. research and development as well as in developing new market intelligence. compared to € 30. 608 Subtitling could also be envisaged in other non-European languages. CIP ICT PSP (Digital Libraries). should be considered. in particular with theatre owners in relation to European titles that were given no or limited theatrical release. 202 . investing in innovative business models.500 to subtitle a film in one other language. 609 Practical advice on subtitling and dubbing in relation to establishing pan-European VOD offers is given in the above mentioned study. Film-funding bodies across Europe should consider the establishment of audiovisual innovation funds. > Independent producer-friendly terms of trade: Broadcasters and digital operators should be encouraged to return digital distribution rights to independent producers after a certain period of time (revision of terms of trade) and/or if these rights remained unexploited. The purpose of such mechanisms would be to test new business models and should not unnecessarily skew market demand. It costs approximately € 1. > Encourage flexible release windows in relation to some films: More flexible or shorter release windows. EU programmes and projects that could be to the benefit of VOD (MEDIA. rather than selling them in bundles with other exploitation rights.European foreign language content608. such as Arabic. This would allow them to build up a catalogue of rights and to bridge the current financing gap that prevents rights holders from experimenting with digital distribution.

Innovation voucher schemes. 203 . For example. the sector must develop its skills relevant to the new digital market place. Such schemes help create demand-led innovation in specific sectors in a hands-off way. marketing and ICT.FP7/8. networking events that develop rights holders’ ICT knowledge and forge links with ICT companies would contribute to shared understanding. Culture. Furthermore. 3. etc. MEDIA could help to identify and broker relationships with rights holders that do not participate in relevant research and innovation programmes such as FP7/8. Lifelong Learning.) need to be more in synch. Training programmes aimed at developing the strategic capacities of rights holders in relation to VOD exploitation and networked media should be further supported. such as the Creative Credits scheme in the UK. Specialised funds should be made available for rights holder (particularly SMEs) to join EC innovation and research programmes. Developing skills and capabilities in relation to the digital shift As pointed out throughout the report. should be used to enable film companies to buy expertise and skills in relation to digital strategy development. its general awareness of new information technology trends and its understanding of new consumption behaviour.

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